Mnuchin Seeks to Assuage Investors After Powell’s Gloomy Outlook
The Treasury secretary presented a more sanguine message.
(Bloomberg) -- Treasury Secretary Steven Mnuchin sought to reassure investors about the U.S. economy after stocks slumped to a three-week low on warnings by Federal Reserve Chair Jerome Powell of unprecedented risks.
“I think what the chair was saying is that there could be significant downside risk, but on the other hand” if the U.S. reopens its economy slowly and carefully, “next year we’ll be back to having a great economy just like we had before,” the Treasury chief told Fox News.
Powell earlier Wednesday warned of broad dangers related to the coronavirus pandemic, saying a recovery would take time and that the U.S. is at risk of longer-term economic damage.
The Treasury secretary presented a more sanguine message. Mnuchin, who speaks to Powell regularly, said he listened to the Fed chair’s remarks earlier in the day, and later talked with him by phone.
The S&P 500 on Wednesday dropped to the lowest level since late April following Powell’s remarks.
‘Solvency Problems’
“The recovery may take some time to gather momentum, and the passage of time can turn liquidity problems into solvency problems,” Powell said in remarks to a virtual event hosted by the Peterson Institute for International Economics.
President Donald Trump has been pushing for states to quickly reopen their economies. But that effort has met resistance as polling shows many Americans are concerned that moving too quickly could put lives at risk. The virus has led to more than 84,000 deaths in the U.S.
Almost 40% of Americans in households making less than $40,000 a year had lost a job in March, according to Fed data released this week. In the first six weeks of the pandemic-induced economic shutdown, 30 million people lost jobs.
The unemployment rate is seen peaking at 25% by economists at Goldman Sachs Group Inc.
Mnuchin and Fed officials have said economic damage caused by the virus isn’t comparable to a financial crisis. Instead, they’ve said it should be viewed as a slowdown brought on by a unique situation: An economy forcibly shut down by the government.
“Economic models don’t really predict this,” Mnuchin said. “This is not a traditional situation.”
Despite Powell’s message earlier in the day that “additional fiscal support could be costly, but worth it,” Mnuchin continues to contend that no immediate action is necessary.
He rejected the House Democrats’ proposal to unleash another $3 trillion stimulus package as something Republicans wouldn’t agree to, and that there’s no urgency for additional spending.
“Let’s have this money in the economy, let’s take the next 30 days and think carefully,” Mnuchin said. “If we need to spend more money down the road, we’ll come back and do that.”
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