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Chief economist update: Extraordinarily uncertain outlook

US Federal Reserve chair Jerome Powell has painted an optimistic picture of developments in the US economy while at the same time warning of extraordinary uncertainty.

"As the economy reopens, incoming data are beginning to reflect a resumption of economic activity: Many businesses are opening their doors, hiring is picking up, and spending is increasing. Employment moved higher, and consumer spending rebounded strongly in May. We have entered an important new phase and have done so sooner than expected," he said.

This is because, he notes: "The crisis was met by swift and forceful policy action across the government, including the Coronavirus Aid, Relief, and Economic Security Act (CARES Act). This direct support is making a critical difference not just in helping families and businesses in a time of need, but also in limiting long-lasting damage to our economy."

This is what Powell stated in his prepared remarks before the Committee on Financial Services if the House of Representatives.

However, Powell also warned that: "While this bounceback in economic activity is welcome, it also presents new challenges—notably, the need to keep the virus in check."

"While recent economic data offer some positive signs, we are keeping in mind that more than 20 million Americans have lost their jobs, and that the pain has not been evenly spread. The rise in joblessness has been especially severe for lower-wage workers, for women, and for African Americans and Hispanics. This reversal of economic fortune has caused a level of pain that is hard to capture in words as lives are upended amid great uncertainty about the future."

Output and employment remain far below their pre-pandemic levels, he added, saying the path forward for the economy is "extraordinarily uncertain" and will depend in large part on the country's success in containing COVID-19.

"A full recovery is unlikely until people are confident that it is safe to reengage in a broad range of activities," Powell said.

"The path forward will also depend on the policy actions taken at all levels of government to provide relief and to support the recovery for as long as needed."

For its part, the Fed is "committed to using our full range of tools to support the economy and to help assure that the recovery from this difficult period will be as robust as possible".

The Fed's commitment might be tested soon enough, given the continued increase in cases of infections in the country, particularly, in Florida, Texas, Arizona and California. So much so that Texas, Florida, California and New Jersey have rolled back some of their respective re-opening endeavours, while others suspended the next stage of re-opening.

How quickly the coronavirus is wiped out or goes away is the key.

Until then, Powell says: "The path forward for the economy is extraordinarily uncertain."

Read our full COVID-19 news coverage and analysis here.

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