The Federal Reserve’s Open Market Committee moved Wednesday to keep benchmark short-term interest rates at near zero percent through 2022 while laying out a dismal forecast for the American economy—and recovery.
Federal Reserve chairman Jerome Powell believes the number of newly out-of-work people whose jobs have disappeared forever runs “well into the millions,” amid an unemployment rate that will remain stubbornly high for years. Given that the coronavirus pandemic “displaced” more than 20 million workers, “it will take some time” for payrolls to normalize,” he said at a press conference Wednesday.
Economic growth is expected to decline 6.5 percent this year, according to the Fed, which sees positive expansion of 5 percent in 2021 and 3.5 percent the year after.
Though May’s jobs report offered better-than-expected results, Powell was in no hurry to declare any kind of victory in getting people back to work.
The surprising data, which showed employers added 2.5 million jobs last month, came as many businesses like restaurants and bars “created” jobs by rehiring employees who were furloughed amid shelter-in-places orders.
Despite the bit of positive news, the unemployment rate stands at 13.3 percent while the total number of people filing for first-time unemployment benefits reached roughly 42.6 million since the pandemic began unraveling the fabric of the American economy halfway through March.
And while President Trump crowed in a tweet “Really Big Jobs Reports. Great Going President Trump (kidding but true),” Powell likely angered his employer when he downplayed last month’s jobs update, noting, “We don’t know what that means.”
Powell said many economic prognosticators expect the economy will bottom out “in the middle of the year,” though the labor market may have reached its nadir last month. “We’re not going to overreact to one data point” on jobs, he said. “There’s a possibility a bottom has come in the labor market, but we don’t know that. We’ll know more as we go forward.”
Powell was careful to steer his remarks toward fiscal policy on lending, noting that while the government might need to step in with more action, spending policy remains the purview of Congress.
At this point, “the pace of recovery remains extraordinarily uncertain,” Powell said, given the unknowns surrounding how state reopenings will pan out. (Already, many have seen their coronavirus cases rise after their first forays into reopening.) Plus, a real recovery will come only when consumers feel safe re-engaging in a broad range of activities, like shopping in enclosed malls, standing shoulder to shoulder at indoor concerts and sitting in the nosebleeds with tens of thousands of fellow sports enthusiasts.
Many economists have drawn comparisons between the current malaise and the Great Depression, but Powell isn’t one of them. He believes the government’s “forceful” response to the downturn will prevent a 1929-level collapse, also pointing to sound pre-pandemic fundamentals like a financial system in “very good shape” and unemployment rates hitting 50-year lows.
But Powell warned of the risks that come with workers out of the game for months or even years—potentially rendering their skill sets irrelevant. And with the expectation that many retailers will have no choice but to permanently close some of their stores, associates will either face headwinds in landing new retail jobs or opt for retraining in another sector.