Economy

US central bank president: shrinkage may be more than 30 percent

He said that last night in the television program 60 minutes. According to Powell, unemployment can rise to levels we also know from the 1930s. Then unemployment peaked at around 25 percent.

Yet Powell is also optimistic. It is good news, he says, that an “overwhelming” majority of Americans who have applied for WW benefit say they are temporarily out of work, which would mean they expect to return to their old jobs.

No depression

Powell thinks there will be no more depression. Depression is more serious than a recession.

A recession is when there is negative growth for two quarters in a row. Depression, on the other hand, is generally described as an extreme recession, lasting for several years, with the economy shrinking by at least 10 percent in any given year.

Until the end of 2021

According to Powell, the current financial situation along with the dynamics of the US economy and the strength of the financial system should pave the way for a “significant” recovery.

The US economy could grow again in the third quarter, Powell said. “Assuming there will be no second wave of contagion, the economy will gradually recover in the second half of the year,” he said.

Shrinkage 42 percent?

The Fed is made up of several central banks that cover part of the US. According to the Atlanta Fed, macroeconomic data points to a contraction of the economy in the second quarter of more than 42 percent.

Investment bank Goldman Sachs assumes a contraction of 39 percent. In the third quarter, that should be followed by a growth of 29 percent.

Retail sales fell by 16.4 percent in April, which was even worse than feared. In total, since the onset of the coronavirus in the US, 36.5 million Americans have applied for WW benefit.

‘Different from the 1930s’

The situation is different than in the 1930s, Powell said, because the Fed and politicians have now taken action. About 3 trillion dollars (3000 billion dollars, approximately 2700 billion euros) has already been pumped into the economy.

The current downturn is also due to the government locking the economy in the fight against the corona virus.

Japan

Meanwhile, the Japanese economy has entered a recession. In the first three months of the year, the economy contracted by 0.9 percent. That’s after a drop of 1.9 percent in the fourth quarter.

The contraction in the first quarter was slightly less than the 1.1 percent that economists had assumed. For the second quarter, however, a larger decline in the economy is expected, between 6 and 10 percent.

The Japanese economy has barely grown for years. The population is shrinking, and this is even more true for the labor force.

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