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Powell: Coronavirus economy still at risk of downward spiral

(Reuters) - The U.S. economic recovery remains far from complete and could still slip into a downward spiral if the coronavirus is not effectively controlled and growth sustained, Federal Reserve Chair Jerome Powell warned on Tuesday in a call for more help to businesses and households.

Story: Powell Q&A

MARKET REACTION:

STOCKS: The S&P 500 .SPX moved in choppy trade after Powell's comments and was last 0.06% easier

BONDS: U.S. Treasury yields were little changed; 2s US2YT=RR inched up to 0.1448%; 10s US10YT=RR moved up then flattened 0.7801%

FOREX: The U.S. dollar index .DXY was near flat, off 0.07%

COMMENTS:

MICHAEL SKORDELES, U.S. MACRO STRATEGIST, TRUIST/SUNTRUST ADVISORY SERVICES, ATLANTA“He’s saying essentially that we need fiscal policy and monetary policy. In one line, he says they work better when they’re hand in hand. One of the amazing things about this time around – the fiscal stuff happened with the onset of the recession. That’s why it was so powerful.”

“One thing he touched on in the Q&A is that at the state and local level they’re essentially fiscally tightening. That’s why there’s this full-throated, ‘C’mon, we need fiscal support. Tsk, tsk, stop looking at the federal debt load. Now’s not the time to be looking at debt.’”

“Perhaps stocks are looking at it as, ‘Why does (Powell) need to be more forceful?’ The White House is being distracted by a number of things – COVID, for one. There’s also the Supreme Court pick. It diminished the likelihood of getting a deal done before the election. The fact that Powell has to come out and say these things again maybe means there’s a low likelihood of getting fiscal support before the election, the way things are sitting right now.”

DENNIS DICK, PROPRIETARY TRADER, BRIGHT TRADING LLC, LAS VEGAS

“This Fed has been the most accommodating in the history of the Fed.”

“It has been the most concerned about keeping markets up. Powell, being very accommodating here, is cognizant to the fact that half of the U.S. is in financial trouble right now.”

“This is the environment to worry about people and get us through this crisis and that’s why, it’s important that we do continue with stimulus.”

“This whole crisis for the most part has just separated the rich from the poor, it has made the gap wider. So Fed policy isn’t helping them, stimulus is going to help them.”

EDWARD MOYA, SENIOR MARKET ANALYST, OANDA, NEW YORK (emailed)

“US stocks seesawed after optimism with both stimulus negotiations and progress with antibody treatments with the coronavirus was countered by Fed Chair Powell’s reminder that recovery needs Congress to act soon. Powell comments at the NABE Conference highlighted that the rapid pace of the recovery is slowing and could trigger typical recessionary dynamics. Powell pointed out that the more realistic unemployment rate is closer to 11% and that the risks of overdoing it on stimulus is smaller than doing too little. His remarks did not reveal anything new, the recovery will weaken without fiscal aid and that the outlook is uncertain.”

KATHY BOSTJANCIC, CHIEF U.S. FINANCIAL ECONOMIST, OXFORD ECONOMICS, NEW YORK

“To me, this is going to be very much linked to the need for more fiscal policy. That we’re not out of the woods yet. The economy is recovering, but even if we don’t have an immediate double-dip recession, if it’s just a very, very slow recovery, that itself could be problematic.”

“There’s no comments in here what exactly the Fed will do, so from that standpoint markets may be a little bit underwhelmed.”

PAUL NOLTE, PORTFOLIO MANAGER, KINGSVIEW INVESTMENT MANAGEMENT, CHICAGO

“Powell has been calling for fiscal support for the better part of the last three months, and that was not a surprise at all.”

“Investors are certainly focused on any type of stimulus that they can get. The Fed is pretty much saying we’re done, there’s not much more to do, the financial markets are functioning, it’s now up to you lawmakers to do the next step.”

JOHN AUGUSTINE, CHIEF INVESTMENT OFFICER, HUNTINGTON NATIONAL BANK, COLUMBUS, OHIO

“Markets are worried about what the Fed knows that we don’t know. The Fed is sticking with a very consistent position that we need more fiscal stimulus for 3 or 4 weeks now.”

“The market is concerned that the Fed knows something about the future of the economy that the market doesn’t.”

“The things that are obvious to us are that small businesses are closing and unemployment remains high in the service sector. The Fed aggressively wants to address both of those with more fiscal stimulus,”

“At their last meeting the Fed greatly upped their estimate of the economy going forward … “They agreed the recovery was much faster than initially thought but there’s something worrying them about the future.”

Compiled by Alden Bentley and the global Finance & Markets Breaking News team

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