JAKARTA (TheInsiderStories) – United States (US) economy shrank 4.8 percent in the first quarter of 2020, the first contraction since 2014, said the secretary of commerce yesterday. The contraction was experienced because efforts by the government to stem the spread of the COVID-19 have forced many companies in the country to close and consumers not to leave their homes.
“Today’ GDP numbers are weak, but in line with expectations as a result of the COVID-19-driven disruptions to daily lives at home and around the globe that have rocked global markets and supply chains,” said the secretary of commerce, Wilbur Ross in official statement released on Wednesday (04/29).
He continued, “We continue to have the most resilient economy in the world, driven by innovative and hardworking Americans who have shown that they are willing to make the needed sacrifices to defeat this invisible enemy.”
Ross conveyed, President Donald Trump has taken bold action to leverage the expertise and resources of the entire nation in this fight. Congress also has confronted the seriousness of this challenge with trillions of dollars in relief funding for those impacted by the virus, establishing a firm footing for a swift and strong American comeback.
“When this chapter ends, America will be both stronger and healthier than ever because of the President’ decisive and timely actions,” he stated.
Commenting on the economic data, chair of Federal Reserves, Jerome Powell expects an “unprecedented” drop in second quarter of GDP and for there to be significant increases in unemployment. It also will “take some time” for consumers to start spending again once the economy begins to reopen, he adds.
The Federal Open Market Committee (FOMC) sketched the extent of the COVID-19 effect so far, noting that “weaker demand and significantly lower oil prices are holding down consumer price inflation” and that “disruptions to economic activity here and abroad have significantly affected financial conditions and have impaired the flow of credit to U.S. households and businesses.”
The health crisis “will weigh heavily on economic activity, employment, and inflation in the near term, and poses considerable risks to the economic outlook over the medium term.”
On April 9, FOMC minutes from its March meetings revealed that in its worst-case scenario the central bank believed that the US economy would not recover from the COVID-19 damage until next year. Before, Mckinsey & Co., sees the US and Eurozone’ economies could take until 2023 to recover from the impact of the virus crisis.
In their discussion, the policymaker noted, that the COVID-19 spread had harmed communities and disrupted economic activity in many countries, including America, and that global financial conditions had also been significantly affected.
Available economic data showed that the US economy came into this challenging period on a strong footing, with a strong labor market, a low unemployment rate, and moderate growth in household spending, although business fixed investment and exports had remained weak. More recently, the energy sector had come under stress.
On a 12-month basis, overall inflation and inflation for items other than food and energy were running below 2 percent, said the governors. Market-based measures of inflation compensation had declined, and survey-based measures of longer-term inflation expectations were little changed.
Members judged that the effects of the coronavirus would weigh on economic activity in the near term and would pose risks to the economic outlook. In light of these developments, almost all members has agreed to lower the target range for the federal funds rate to 0 to 0.25 percent.
“These members expected that the target range would be maintained at this level until they were confident that the economy had weathered recent events and was on track to achieve the committee’ maximum employment and price stability goals,” said the minutes.
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