Fed Chairman Powell Expects Economy to ‘Drop at an Unprecedented Rate’ in Q2

Federal Reserve Chairman Jerome Powell gave a statement on the state of the economy today, declaring that “economic activity will likely drop at an unprecedented rate in the second quarter.” It was an announced today that GDP decreased 4.8% in the first quarter of 2020, after increasing 2.1% in the previous.

According to the Chairman, the severity of the economic downturn is still “extraordinarily uncertain and will depend in large part on how quickly the virus is brought under control.”

To support the economy in the meantime, Chairman Powell mentioned how the Federal Reserve lowered the interest rate to near zero, and added he expects to maintain interest rates at this level until they are “confident that the economy has weathered recent events”. He clarified “that lowering interest rates cannot stop the sharp drop in economic activity caused by closures and other forms of social distancing.” He also referred to the Federal Resreve’s “purchasing large amounts of Treasury and agency mortgage-backed securities” and “increasing the willingness of private lenders to extend credit” to support economic stability.

Ultimately, Chairman Powell stressed how the Reserve has to “rely on emergency lending powers” to provide this level of support, and “direct fiscal support may be needed.”