Fed chair warns against ‘false start’ as Trump eyes May reopening of economy

Federal Reserve Chairman Jerome Powell warned Thursday against prematurely breaking from social distancing practices as President Trump and other administration officials hope to reopen swaths of the economy by May.

Powell said that while it was “time to have a serious conversation” about how to restart normal economic activity, the Fed chair warned against causing a spike in coronavirus cases that forces the U.S. into another stretch of business closures and layoffs.

“We need to have a plan nationally for reopening the economy. We all want it to happen as quickly as possible,” Powell said in a Thursday video interview with the Brookings Institution.

But the Fed chief added that it was crucial to “avoid a false start where we will partially reopen and that results in a spike in coronavirus cases, and then we have to go back again to square one.”

Powell’s warning came after he was asked if he shared Treasury Secretary Steven Mnuchin’s belief, expressed in a CNBC interview earlier Thursday, that the U.S. could be “open for business” by May. 

Powell demurred on whether the U.S. could resume normal activity by then, insisting that the decision should be left up to medical experts and other government officials. He added that the Fed was in “no hurry” to suspend its ongoing efforts to make trillions of dollars in asset purchases and rescue loans across the economy and financial system.

The Fed earlier Thursday announced a new tranche of up to $2.3 trillion in economic aid, including $600 billion to purchase loans for small and midsize businesses, $500 billion to buy state municipal bonds and billions more to bolster the central bank’s ongoing purchases of Treasury, corporate, consumer and municipal securities.

“They’re tentatively scheduled to stop lending on Sept. 30. If they have to go longer than that, of course they will,” Powell said Thursday. 

Powell also said that “when the virus does run its course and it’s safe to go back to work and safe for businesses to open, then we would expect there to be a fairly quick rebound.”

The White House’s guidelines encouraging Americans to stay home and physically distance themselves are in place until April 30, which sets up a decision for Trump at the end of the month on whether to extend the guidelines into May.

Trump said earlier this week that he believes the U.S. is within sight of the “light at the end of the tunnel” amid hopes that U.S. coronavirus cases may peak soon. Anthony Fauci, the federal government’s top infectious disease expert, also said Wednesday that the U.S. would face fewer deaths due to COVID-19 than projections had initially predicted.

Officials in Washington and Oregon — two of the states hit earliest and hardest by the coronavirus pandemic — have also voiced cautious optimism that early and strict adoption of social distancing measures have slowed the spread of COVID-19 there.

The growing optimism in the societal response to the pandemic comes amid deepening economic harm caused by the measures to impede the virus. More than 6.6 million Americans filed new claims for unemployment benefits in the final week of March, according to data released Thursday by the Labor Department, following record-breaking surges of 6.8 million and 3.3 million applications in the previous two weeks.

Updated at 2:42 p.m.