Covid-19 crisis: Jerome Powell warns of lasting harm; US stocks slump

The US economy faces unprecedented downside risks that could do lasting damage to households and businesses if fiscal and monetary policymakers don’t rise to the challenge, Federal Reserve Chair Jerome Powell said. US stocks fell sharply for the second day on Wednesday after his comment.

The Dow Jones Industrial Average was down 496.84 points, or 2.09 per cent, at 23,267.94, the S&P 500 was down 52.72 points, or 1.84 per cent, at 2,817.40 (at 9:37 pm IST).

“The recovery may take some time to gather momentum, and the passage of time can turn liquidity problems into solvency problems,” Powell said on Wednesday in remarks prepared for a virtual event hosted by the Peterson Institute for International Economics in Washington. “Additional fiscal support could be costly, but worth it if it helps avoid long-term economic damage and leaves us with a stronger recovery.”

Powell and his colleagues on the policy-setting Federal Open Market Committee have taken dramatic measures to shelter the US economy during the coronavirus pandemic.

They have cut their benchmark interest rate to nearly zero, engaged in open-ended bond buying and begun rolling out emergency lending programs as US unemployment has soared to levels not seen since the 1930s Great Depression.

The Fed chair in his speech outlined the worrying scenario posed by mass bankruptcies and unemployment while asserting that policy makers may have to do more to prevent it from coming to pass. He said the Fed would publish a survey Thursday showing almost 40 per cent of Americans in households making less than $40,000 a year had lost a job in March.