The US Central Bank (Fed) has promised to do everything it can to save the US economy, devastated by the Covid-19 pandemic that ended more than a decade of growth. The US economy will “probably fall at an unprecedented rate in the second quarter,” warned US Central Bank President Jerome Powell on Wednesday.
He was careful not to give a quantified forecast, given the uncertainties as to the extent and duration of the slowdown, which “will largely depend on the speed with which the virus will be brought under control,” he said during the meeting. ‘a press conference.
GDP fall of 4.8% in the first quarter
The country has posted solid growth since the end of the 2009 financial crisis. President Donald Trump welcomed 2.3% in 2019 and was targeting 3% per year. The good health of its economy was also a strong argument in its race for re-election to the White House. However, the gross domestic product (GDP) of the world’s largest economy fell 4.8% in the first quarter, the victim of containment measures put in place to stem the progression of the pandemic.
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Restaurants, bars, shops, schools, have gradually closed. In five weeks, more than 26 million people have registered for unemployment, unprecedented, “much faster for minorities” and low-income households, lamented Jerome Powell.
And, while only the end of the quarter was affected by these measures, the fall in GDP will be much more spectacular in the second quarter, which will also mark the official entry of the United States into recession, according to a classic definition of this decline in national wealth. Analysts’ projections point to a fall of around 30 to 40%.
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Flawless support promised by the Fed
To ensure a “as robust as possible” recovery of the economy, the American Central Bank has not skimped for two months. It has unsheathed all of its classic crisis-time tools, and created others, in order to reassure the markets and give a breath of fresh air to businesses and households.
And she promised Wednesday to continue using them “aggressively”, saying that the economy “will probably need more support” than the measures already taken, which are yet unprecedented. Public money will have to be drawn heavily, according to Jerome Powell.
“It is time to use the great budgetary power of the United States to support the economy and try to get through (this crisis) with the least possible damage to the long-term production capacities of the economy”, he advanced. Finished the budgetary orthodoxy, the reflection on the deficit will come after.
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The Fed’s monetary committee has also kept key rates in the 0-0.25% range, and will leave them there until it is satisfied that the economy “survived” this crisis.
“The rebound after the virus will be strewn with pitfalls”
The economy should recover timidly from the summer. But the fall in the second quarter will be such that the recovery in the third quarter is unlikely to be sufficient to return to pre-crisis levels. The recession in the United States could be three times stronger than during the financial crisis, “and the strongest economic contraction since the Second World War”, according to analysts at Oxford Economics.
“The sudden cessation of private sector activity will be partially offset by massive public sector spending (…) and an unprecedented stimulus from the Fed,” they comment, but “the job losses will be traumatic. and the rebound after the virus will be very gradual and full of pitfalls ”. For some sectors particularly affected by the paralysis of the economy, like air transport, the return to the level of 2019 could take several years.
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The International Monetary Fund thus expects a contraction of US GDP by 5.9% for the year 2020. The measure used in the United States to estimate growth is the change in annual rate, which compares the GDP to that of the quarter previous year, and projects the evolution over the whole year at this rate. It differs from the annual change, which compares GDP to that of the same quarter of the previous year.
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