(Kitco News) Federal Reserve Chairman Jerome Powell reiterated his feelings of uncertainty in terms of timing and strength of the U.S. economic recovery.

“The levels of output and employment remain far below their pre-pandemic levels, and significant uncertainty remains about the timing and strength of the recovery. Much of that economic uncertainty comes from uncertainty about the path of the disease and the effects of measures to contain it. Until the public is confident that the disease is contained, a full recovery is unlikely,” Powell said during an appearance before the Senate Banking Committee on Tuesday.

Powell did acknowledge that things are beginning to look up but stressed there is going to be a disparity in terms of who get hurt the most.

Recently, some indicators have pointed to a stabilization, and in some areas a modest rebound, in economic activity,” he said. “The burden of the downturn has not fallen equally on all Americans. Instead, those least able to withstand the downturn have been affected most.”

Powell also warned that Q2 economic growth is going to be the worst the U.S. has ever seen. “The decline in real gross domestic product (GDP) this quarter is likely to be the most severe on record,” he said.

There are three stages that the U.S. economy will see with the COVID-19 crisis, said Powell.

The first was the shutdown stage when there was a sharp decline in economic activity and high levels of unemployment, which described Q2. The second stage is the bounce-back stage, which will see the economy reopening and people going back to work. And the third stage will see the U.S. “well short” of where the economy was in February prior to the crisis as some parts of the economy will struggle to get back to pre-coronavirus production levels, Powell explained.

Gold prices remained largely flat on the day, waiting for direction. At the time of writing, August Comex gold futures were trading at $1,727.10, down 0.01% on the day.

The Fed Chair also highlighted long-term effects the COVID-19 crisis could have on the U.S. economy.

“The longer the downturn lasts, the greater the potential for longer-term damage from permanent job loss and business closures. Long periods of unemployment can erode workers’ skills and hurt their future job prospects,” he stated.

When talking about inflation, Powell said that despite some stabilization, it will likely remain below the Fed’s 2% objective “for some time.”

The Fed is planning to maintain its near zero-range interest rates until this crisis is behind the U.S., Powell reiterated.

“We are committed to using our full range of tools to support the economy in this challenging time,” he said. “We expect to maintain interest rates at this level until we are confident that the economy has weathered recent events and is on track to achieve our maximum-employment and price-stability goals.”

Last week, the Fed kept interest rates unchanged and signaled no rate hikes through 2022. The interest rate remained in a range between zero and 0.25%.

The Fed also released its first quarterly forecasts since December, including a dot plot of its rate projections. Looking at growth, the Federal Reserve said it expects U.S. GDP to contract by 6.5% this year.

The U.S. unemployment rate is projected to be around 9.3% this year, 6.5% in 2021 and 5.5% in 2022. The U.S. central bank also expects price pressures to be weak with projections showing inflation at 0.8% this year, 1.6% in 2021, and 1.7% in 2022.

On Monday, the Fed launched its Main Street lending program, which can offer up to $600 billion in loans to U.S. businesses that employ up to 15,000 people or have revenues up to $5 billion.

The central bank also announced on Monday that it will begin buying individual corporate bonds.

Author: Anna Golubova

Source: Kitco: Powell stresses uncertainty around ‘timing’ and ‘strength’ of the U.S. recovery, gold prices wait for direction

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