How badly will the corona crisis affect the US economy? Brutal, devastating, that’s how you would like to put it when you hear the latest statements from Chief Jerome Powell (head of the US Federal Reserve). Tonight, the Fed chief gave an interview to the US channel CBS (see original here). The most important statement of Jerome Powell: The US economy will collapse by 20 to 30 percent in the current second quarter! In the course of the rest of the year he expects a steady recovery if there is no second wave of the coronavirus pandemic. It could take until the end of 2021 to return to the economic situation before the corona crisis. A vaccine against the coronavirus is “perhaps” necessary so that the USA can fully recover economically. At the end of April, official data showed that economic output had slumped by 4.8 percent in the first quarter.
Fed Chairman Powell on the crisis and possible negative interest rates
Please keep in mind that the Shut Downs in Europe and the USA only started in mid-March. The slump in the second quarter is therefore likely to be brutally worse. And as we said, Fed Chairman Powell sees this figure at as low as minus 30 percent! Powell also believes that the official (!) unemployment rate in the USA could rise to 20 to 25 percent. Currently it is already at 14.7 percent – the highest value since 1933! But Powell does not see a dimension of economic collapse like in the 1930s. So, quickly down, and then up again in a few quarters, with trillions of printed Fed Dollars flooding banks and the economy? In the following video you can see excerpts from the interview with CBS. This is about whether there will be negative interest rates in the United States.
This question is currently interesting because Donald Trump recently urged the Fed to finally introduce negative interest rates. Powell is currently saying that other stimulus options have been chosen. And they still don’t believe that negative interest rates will be introduced in the USA. Negative interest rates would attack the profitability of banks, which would make them lend less money. Ohhhhh, we would like to say. Did the Fed Chairman notice something that the ladies and gentlemen at the ECB just don’t want to admit? Namely that negative interest rates are destroying the core business model of the banks? Nor has it been proven that negative interest rates are particularly useful, Powell said.
Here is another excerpt from the interview with Fed Chairman Jerome Powell. In the last crisis there were problems in the financial system. This time there was a big crisis in the real economy. The point is to help companies through the crisis, that they have costs but no income due to the special situation in the Corona crisis.