Economy

US Fed Chair Powell warns of prolonged recession amid COVID-19 crisis

US Fed Chair Powell warns of prolonged recession amid COVID-19 crisis”

"Additional fiscal support could be costly, but worth it if it helps avoid long-term economic damage and leaves us with a stronger recovery", he said.

Congress and the Fed have unleashed trillions of dollars in coronavirus aid to support the economy.

Powell's comments on Wednesday sent investors scurrying to the relative safe-haven appeal of the greenback while USA stocks posted their biggest two-day fall in more than three weeks. The dollar index =USD rose 0.27%, with the euro EUR= down 0.29% to $1.0785.

The Fed has ruled out "negative interest rates".

Powell, who has orchestrated the most extraordinary economic rescue plan in the history of the Federal Reserve, could to discuss the Fed's future stimulus plans.

The usefulness of negative rate policy triggered a debate in global central banking circles, given the examples of Bank of Japan and European Central Bank which could not reap the benefits and failed to reach the desired level of inflation.

Mr. Powell earlier Wednesday said the Fed is still not looking at setting rates below Zero, and instead pushed lawmakers to use spending to boost the economy during the C-19 coronavirus chaos.

More news: Chinese envoy says U.S. undermining global economy, virus fight

It's that investors would drain cash-like funds - which hold nearly $5 trillion and underpin liquidity in the financial system - and deposit it with banks, where rates would likely be higher, according to UBS Group AG.

As a former real estate developer, the notion of being able to borrow at low or negative rates suits President Trump's mindset, the strong United States dollars has given him leverage to push for negatives rates.

Powell is only the latest in a string of U.S. policymakers to rebuff the idea that a sub-zero policy is on the table.

"It's not the time to prioritize" concerns about fiscal spending, Powell said.

Interest rate futures tied to Fed interest rate policy expectations recently began pricing a chance of sub-Zero US rates within the next year. And given all the work the Fed has done to ease the stress in funding markets, including opening swap-lines with foreign central banks and discount window measures, it's unlikely the Fed will advocate a move that could strain liquidity, Cloherty said.

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