(Reuters) - The United States has failed to control the coronavirus and there is a high level of uncertainty over how much the pandemic will affect the economy, Philadelphia Federal Reserve Bank President Patrick Harker said on Wednesday.
Based on average forecasts, Harker said real GDP growth could drop by 20% in the first half of this year and then grow by 13% in the second half. He said the economy could decline by about 6% for the year
“That’s a much sharper recession than we experienced during the financial crisis,” Harker said in remarks prepared for a webinar, also noting that projections are “constantly changing along with the path of the virus.”
Policymakers are limited in terms of what they can do to support the economy because much will depend on the path of the virus, Harker said. The Fed responded aggressively in March to support the economy by cutting interest rates to near zero and launching a suite of emergency lending facilities to help keep credit flowing to households and businesses.
The economic recovery is expected to be long and slow, he said. Rather than taking a U-shape, the path of the economy could look more like a “Nike swoosh,” Harker said.
Fed officials will support market functioning by keeping rates near zero and by continuing to purchase about $120 billion worth of Treasury bonds and mortgage-backed securities each month, Harker said. Policymakers will unwind the emergency facilities, including a program that supports the corporate bond market, as the economy and markets improve, he said.
Harker said public-private partnerships that provide job training can help to ensure that low-wage workers and minorities take part in the recovery.
“As the recovery takes shape, I want to make sure that the coming growth is not only strong, but inclusive,” he said.
Reporting by Jonnelle Marte; Editing by Chizu Nomiyama and Alistair Bell