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COVID-19: It will take 'a year or two' before US economy recovers: Fed official

Full Economic Consequences of Coronavirus Still Unknown

Fed’s Williams says ‘our work is not done’ to try to repair economic damage from coronavirus

The United States will take “a year or two,” if not longer, to recover from the devastating economic impact of the coronavirus, a top Federal Reserve official says. AFP reported on Thursday.

“It would probably take a year or two, a few years to get the US economy fully back to full strength,” New York Federal Reserve Bank President John Williams says. “Unfortunately, this is a situation where I think the economies can be underperforming for some time,” he says in a video conference organized by the Economic Club of New York.

According to Reuters, the Federal Reserve took "bold action" to shore up markets disrupted by the coronavirus pandemic and launched an unprecedented level of open market operations, but the full scale of the virus' toll on the economy is still unknown, Williams said Thursday.

The Fed joined central banks around the world in efforts to bolster the global economy as the spread of the virus led to widespread closures of restaurants, museums and other businesses.

Investors at the same time fled to safer assets, creating market volatility and spurring the Fed into action to keep cash flowing through key credit markets, Williams said in his first public remarks since mid-March, when the central bank slashed rates to zero and launched open-ended purchases of Treasury securities, mortgage-backed securities and other assets.

"The coronavirus pandemic has created circumstances we have never experienced before in our lifetimes," Williams said in remarks prepared for a webinar organized by the Economic Club of New York. "The reality is that the full scale of the economic consequences is still unknown."

Fed officials moved rapidly to stem the economic damage caused by the coronavirus pandemic by cutting rates and launching a series of emergency lending tools meant to support money markets, corporate bonds, mortgage bonds and other markets. The New York Fed is tasked with executing most of those facilities.

"To put the current situation in context, we are running more open market operations, for greater sums, than at any time in our history," Williams said.

Lorie Logan, the manager of the System Open Market Account, said earlier this week that the Fed's actions helped to ease trading conditions in some markets. However, she said it may be a while before markets return to pre-crisis levels.

Williams also said Thursday that the uncertainty is not over. "Our work is not done," he said.

According to CNBC reports, over the past month, the Fed has cut its benchmark interest rate to near zero and has instituted a barrage of programs aimed at keeping markets running smoothly and helping get money to businesses and individuals that have been hamstrung by an economic shutdown.

Williams said the Fed now has to make sure those moves perform as they are intended. “Our work is not done,” he said during an afternoon webinar with the Economic Club of New York.

Efforts to contain the coronavirus have shut down large parts of the U.S. economy. More than 22 million Americans have filed claims for unemployment benefits over the past four weeks.

“The reality is that the full scale of the economic consequences is still unknown,” Williams said. “To put the current situation in context, we are running more open market operations, for greater sums, than at any time in our history.”

He said the economy is “going to be underperforming for some time.” “There’s certainly parts of the economy that as people go back to work, I see the economy bouncing back,” he said.

“There’s a lot of uncertainty about how long it will take,” Williams added, noting that the Fed will “use all of our tools as appropriate” to support growth.

Much will depend on public psychology and how quickly people are willing to go out and attend events again, he added.

Williams stressed that the Fed’s monetary moves have to work in conjunction with fiscal pending help from Congress. The Fed and Treasury Department have worked together on programs that could generate $6 trillion in loans and other funding to help the economy.

“The economy is under distress in ways we’ve not experienced in our lifetimes,” he said. “At the New York Fed we are working tirelessly ... to address the economic and financial challenges posed by the pandemic.”

The Fed’s credit facilities have targeted the banking system, businesses of all sizes and state and municipal government debt. The most recent leg, announced a week ago, was targeted at injecting more than $2 trillion of loans.

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