WASHINGTON: Despite some recent positive signs, “significant uncertainty” remains about the recovery of the US economy from the coronavirus pandemic, Federal Reserve Chair Jerome Powell said Tuesday. And unless consumers feel confident COVID-19 has been defeated, “a full recovery is unlikely,” Powell warned in his semi-annual testimony before the Senate Banking Committee.

The central bank chief once again pledged that the Fed will use all of its policy tools to ensure the economy recovers from the pandemic, which he said has inflicted its worst consequences on low-income and minority groups. Despite a surprising rebound in employment in May, the world’s largest economy has shed nearly 20 million jobs since February and the contraction of GDP in the April-June quarter “is likely to be the most severe on record,” said Powell, who was testifying via video link.

Recent economic data reports have given some promising signs that a recovery is underway, cheering Wall Street investors and pushing stocks higher. US retail sales posted a surprise spike of 17.7 percent in May, the Commerce Department said Tuesday, coming in nearly double the gain economists had expected. 

And the Fed reported that industrial production rebounded by 1.4 percent, after two months of steep declines. That adds to the data earlier this month showing the economy adding 2.5 million positions in May and the unemployment rate ticking down to a still-high 13.3 percent, as well as various surveys showing consumers and businesses becoming more optimistic about their prospects. President Donald Trump, who has downplayed risks of the virus and instead focused on reviving the economy as he faces a tough re-election battle in November, cheered Tuesday’s data.

“Wow! May retail sales show biggest one-month increase of ALL TIME, up 17.7 percent. Far bigger than projected. Looks like a BIG DAY FOR THE STOCK MARKET, AND JOBS!” he tweeted.

Widening inequalities

But Powell cautioned that despite the positive data, “The levels of output and employment remain far below their pre-pandemic levels, and significant uncertainty remains about the timing and strength of the recovery.” In fact, signs of the devastation wrought by the pandemic were still apparent in the retail sector, with sales in the period between March, when the business disruptions started, and May down 10.5 percent compared to the same months in 2019.

The Fed chief once again condemned racial injustice amid nationwide protests over the killings of African Americans, and noted that the burden from the business shutdowns to contain the spread of the virus “has not fallen equally on all Americans.” 

“Instead, those least able to withstand the downturn have been affected most,” with the heaviest job losses felt by Hispanics, African Americans and women, Powell said. “If not contained and reversed, the downturn could further widen gaps in economic wellbeing that the long expansion had made some progress in closing,” he said.

In response to a question from a senator, Powell noted that racial gaps in employment are “not a healthy feature” of the US economy. Even before the lockdowns were in full effect nationwide, the Fed slashed interest rates to zero and flooded the financial system with cash, then rushed out a series of lending programs to support businesses as well as state and local governments.

The central bank is also working on a facility to help nonprofit organizations. “We are committed to using our full range of tools to support the economy and to help assure that the recovery from this difficult period will be as robust as possible,” he said.

However the Fed can only lend, not spend, and Powell told lawmakers, “I think you’ll want to continue support for workers in some form. I think there’ll be an awfully lot of unemployed people for some time.”

Congress continues to debate whether to extend the extraordinary unemployment benefits put in place in the CARES Act passed to counter the pandemic. On Monday, White House economic advisor Larry Kudlow said the additional $600 weekly payments to the unemployed will expire as planned in July, saying they discourage workers from returning to their jobs.—AFP

Former Fed chair Ben Bernanke, who presided over the response to the 2008 global financial crisis, on Tuesday co-authored a letter to congressional leaders urging additional support to address the economic suffering and saying it “must be large.”

“Congress must pass another economic recovery package before most of the support in the CARES Act expires this summer,” he said in the letter co-signed by Powell’s predecessor Janet Yellen and two Nobel laureates as well as numerous economists. – AFP