By Canadian Press

Powell warns of a possible sustained recession from pandemic

May 13, 2020 | 7:07 AM

WASHINGTON — Federal Reserve Chair Jerome Powell is warning of the threat of a prolonged recession resulting from the viral outbreak and is urging Congress and the White House to act further to prevent long-lasting economic damage.

The Fed and Congress have taken far-reaching steps to try to counter what is likely to be a severe downturn resulting from the widespread shutdown of the U.S. economy. But Powell warns that there still could be widespread bankruptcies among small business and extended unemployment for many people.

“Deeper and longer recessions can leave behind lasting damage to the productive capacity of the economy,” the chairman says in prepared remarks before an online discussion with the Peterson Institute for International Economics. “Avoidable household and business insolvencies can weigh on growth for years to come.”

The U.S. government “ought to do what we can to avoid these outcomes, and that may require additional policy measures,” Powell says.

He says the Fed will “continue to use our tools to their fullest” until the viral outbreak subsides but gives no hint of what the Fed’s next steps might be.

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Powell repeats his previous warnings that the Fed can lend money to solvent companies to help carry them through the crisis. But a longer downturn could threaten to bankrupt previously healthy companies without more help from the government.

Greater support from government spending or tax policies “could be costly, but worth it if it helps avoid long-term economic damage and leaves us with a stronger recovery,” he says.

Christopher Rugaber, The Associated Press