'W-shaped' recovery may be too optimistic, Fed's Powell suggests

Federal Reserve Chair Jerome Powell has sketched out an altogether bumpier ride for the U.S. economy than many are predicting - one that sees business activity stop and start for months to come, until an effective treatment or vaccine for the novel coronavirus can be found.

'W-shaped' recovery may be too optimistic, Fed's Powell suggests

Since the novel coronavirus outbreak in the United States, economic growth stalled almost overnight as “stay at home” orders shut down large parts of the economy. Economists and Trump administration officials have been divided about how deep and long-lasting the economic impact will be.

Some still foresee a “V shaped” recovery, in which the economy rebounds quickly from a temporary shock. Life in the United States could return to “normal” by June, White House senior adviser Jared Kushner said on Wednesday, adding that “the hope is that by July the country’s really rocking again.”

Others predict a “U shape,” where it takes longer to bounce back. The idea of a “W-shaped” recovery has also steadily gained traction as health experts increasingly warn about a resurgence in virus cases come the fall, and with it, a new downturn in economic growth.

Just under half of 45 economists responding to a Reuters poll earlier this month said the U.S. economic recovery would be “U” shaped. Ten of those polled said it would be “V” shaped, and five said it would be “W” shaped. The poll was conducted before the price of a barrel of U.S. crude oil fell below zero.

In comments on Wednesday, Powell indicated he sees even more disruption than the “W” camp. He spoke at a press conference following the U.S. central bank’s latest policy meeting, at which the Fed reiterated it will use all its tools to support the economy.

Calling all current economic forecasts “highly uncertain,” Powell mapped out why he believes the economy may go through a series of peaks and troughs for at least a year or more as the world battles to keep the virus under control.

The United States has more than 1 million confirmed cases of COVID-19, the respiratory disease caused by the virus, and more than 58,000 people have died, the highest number in the world.