Fed Chair Warns This Is a ‘Downturn Without Modern Precedent’

Jerome H. Powell, the chair of the Federal Reserve, and other top central bank officials warned on Thursday that the United States was experiencing an exceptional shock in the coronavirus pandemic, and that it was wildly unclear when and how low unemployment and widespread prosperity would return.

The United States economy is in a “downturn without modern precedent,” Mr. Powell said.

“In the best of times, predicting the path of the economy with any certainty is difficult,” he added. “We are now experiencing a whole new level of uncertainty, as questions only the virus can answer complicate the outlook.”

The Fed chief’s comments underscored a point his colleagues made repeatedly across a series of speaking engagements on Thursday: The path to recovery is not obvious as the economy and job market absorb the biggest shock in generations. Against that backdrop, several said, both Fed policymakers and those in Congress and the White House should be prepared to do more if needed.

“Depending on the course the virus takes and the depth and duration of the downturn it causes, additional support from both monetary and fiscal policies may be called for,” Richard H. Clarida, the Fed’s vice chair, said during an event earlier in the day.

But key government officials, particularly Republican members of Congress and some leaders in the Trump administration, have signaled varying appetite for providing further help.

Larry Kudlow, the director of the National Economic Council, speaking Thursday at a Washington Post event, expressed opposition to extending enhanced unemployment benefits, which provide an extra $600 a week. Tax cuts and other incentives to encourage hiring would be preferable at this point, he said.

“I do not believe that more government spending is going to give us a strong and durable recovery,” Mr. Kudlow said.

It remains unclear whether lawmakers will agree to extend the more generous unemployment benefits, which expire at the end of July, or if they will provide any additional aid beyond the $2 trillion stimulus package that passed in March.

If a new support package does come, it is unclear when that will happen. Treasury Secretary Steven Mnuchin said on Thursday that while additional government support was likely to be necessary, he was waiting to see how recent relief bills — which total nearly $3 trillion — play out.

“I think there is a strong likelihood we will need another bill,” he said, speaking at an event hosted by The Hill. “We’re going to step back for a few weeks and think very clearly how we need to spend more money and if we need to do that.”

President Trump and his advisers regularly say that once lockdowns end, growth in the United States will experience a rapid recovery.

“Next year is going to be an incredible economic year for this country,” Mr. Trump told reporters on Thursday. “One of our best.”

Fed officials have expressed far less conviction, repeatedly warning that a rapid and steady rebound may be unlikely even as states reopen.

“We are really in just an uncharted situation right now, and my own sense is that we’ll begin to get a better sense of the scenario and the trajectory that the economy is on in the early fall,” Mr. Clarida said while speaking Thursday on a webcast with the New York Association for Business Economics.

Lael Brainard, a Fed governor speaking at the same webcast event as Mr. Powell, called the current moment an “emergency unprecedented in modern times.” She noted that the strong labor market the United States enjoyed last year had quickly given way to the highest unemployment rate since the Great Depression — 14.7 percent in April.

Unemployment is likely to shoot higher before coming back down, several Fed officials warned, and while economic healing should start in earnest later the year, the speed and extent of that process are difficult to guess.

John C. Williams, the president of the Federal Reserve Bank of New York, said on Thursday that the pandemic put “a large question mark” over how industries would fare going forward.

“It’s impossible to know exactly how and when workers and businesses will be fully back to work and when consumers will return to the businesses that are open,” Mr. Williams said at an event held by several business groups based in upstate New York.

Against that backdrop, the economy may need more help to make it through the downturn without permanent scarring.

The Fed cut interest rates to near-zero in March and has been buying immense sums of government-backed bonds, but the stimulative benefit of policies that keep borrowing costs low is limited in the depths of a crisis, when few families are buying houses and few companies are investing in machinery.

The central bank and Treasury Department are introducing lending programs that can keep credit flowing into key markets if conditions worsen; those backstops offer companies and governments debts that need to be repaid. That may be an unhelpful salve if the crisis leaves them months behind on their bills, and facing a long future of uncertain revenue.

Mr. Clarida reiterated on Thursday that the central bank’s policies could not fill all the needs created by the pandemic.

“The Fed is not authorized to grant money to particular beneficiaries, to meet the payroll expenses of small businesses, or to underwrite the unemployment benefits of displaced workers,” he said.

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