Some of you may have already seen the leaked interview of Federal Reserve Bank Chair Jerome Powell by 60 minutes. It is a rare glimpse into a man whose speeches are usually well rehearsed and scripted. While it is interesting to see a different perspective of Powell, the key takeaway from his interview was that he feels the economy can’t fully recover until the public feels confident about the economy and COVID-19.
He is confident that the economy will recover. Still, the notion of a V or U-shaped recovery was never a possibility, and that long-term damage is likely to remain well into the future. He has stated that the FED has plenty of scope left to stimulate the economy further, and it is within his belief that policymakers need to do more to help get the money supply to those that need it.
The interview, while negative at the moment, had upbeat tones all the way through it. He was quite optimistic that by the 3rd quarter of this year, we would begin seeing the first signs of recovery. He also did note that it would not be a quick recovery and that even by the end of 2021, full recovery was unlikely to happen.
The concern now is, how will the economy really bounce back? When the interviewer asked for his expectations, Powell simply said they do not know. The warning of an unemployment rate well into the 20% range is likely to occur. Considering the ‘upbeat’ answers from Powell, it’s a sobering reminder that this crisis is very different from what has been experienced before.
There seems to be no real definitive answer that Powell can give, most of his speeches and live appearances really do feel like he is jawboning. In my eyes, I do not see this interview as being the whole truth of the situation. Before COVID-19, the fed had been conducting repo operations to the sum of approximately $6 trillion, over a 3-month period. That fact alone does not satisfy the statement ‘the economy was good before’.
The 2nd quarter is likely to be worse than the first for 2020, and estimates stand for unemployment to reach beyond 20% and for GDP to contract even more. The immediate responses to his interview have been mixed. As to be expected, some have praised, and some have criticised. For me, his interview did not touch on the current relations between the US and China, a headwind I certainly would have liked to see his perspective on, considering it is likely to affect FED decisions in the near term.
Overall it wasn’t a bad interview, but for those of us in the know, Powell has said that they (the FED) are prepared to literally print unlimited money to help the economy, and they have the capabilities to do so. Still, they can’t create consumer spending, only confidence for the economy from consumers can influence that, and it’s going to be some time before it returns to pre-COVID-19 levels.