WASHINGTON – U.S. Federal Reserve Chairman Jerome Powell said Friday that he is concerned about a second wave of COVID-19 infections, which he believes would dampen consumer confidence and hurt economic recovery.
“So there is clearly a risk of a second outbreak or a second wave. And you know, that will be challenging,” Powell made the remarks in a virtual discussion with former Fed Vice Chairman Alan Blinder, held by the Princeton University.
The central bank chief said a full recovery of the economy will really depend on people being confident that it is safe to go out and safe to engage in a broad range of economic activities. “That’s how the economy will recover,” he said.
“I think a second wave could be what would really undermine public confidence and might make for a significantly longer recovery, weaker recovery,” Powell said.
When asked about the Fed’s stance on negative interest rates, Powell said “we don’t think that that’s an inappropriate tool here in the United States.”
“I would say the evidence on whether it actually works is mixed,” he said. “There were clearly some negative side effects.”
In response to the COVID-19 crisis, the Fed cut interest rates to near zero at two unscheduled meetings in March and began purchasing massive quantities of U.S. treasuries and agency mortgage-backed securities to repair financial markets.
The central bank also announced a Main Street Lending Program, among other things, to help medium-sized businesses hit by the COVID-19 outbreak. Businesses with up to 15,000 employees or up to 5 billion U.S. dollars in annual revenue are eligible.
The Fed is only “days away” from making its first loans to midsize businesses under the new Main Street Lending Program, Powell said at the virtual event, noting that it will offer loans in sizes between half a million and 100 million dollars.
The U.S. Commerce Department on Thursday revised down gross domestic product (GDP) in the first quarter to a 5.0-percent annualized contraction in a second estimate, 0.2 percentage point lower than the advance estimate in April. Despite the revision, analysts say the figure still does not fully capture COVID-19’s economic damage.
Powell recently said the unemployment rate could peak around 20 percent or 25 percent, and the U.S. economy could shrink dramatically in the second quarter, at an annualized rate of more than 20 percent or 30 percent.