Markets got a timely reminder from Federal Reserve Chairman Jerome Powell that the US economy will need more stimulus if its to avoid being stuck in a long, slow recession.
Wall Street tumbled more than 600 points at one stage late in the session.
It was a warning that will equally apply in Australia – the US economy will need more action from the US Congress and the White House, as will Australia’s economy, despite the ‘say nothing’ speech from Federal Treasurer, Josh Frydenberg on Tuesday.
“While the economic response has been both timely and appropriately large, it may not be the final chapter, given that the path ahead is both highly uncertain and subject to significant downside risks,” he said in remarks to the Peterson Institute for International Economics in Washington on Wednesday.
“Additional fiscal support could be costly, but worth it if it helps avoid long-term economic damage and leaves us with a stronger recovery.”
Powell said that the United States is in the midst of the “biggest shock our economy has felt in modern times” and probably will face an “extended period” of weakness.
“The recovery may take some time to gather momentum and the passage of time can turn liquidity problems into solvency problems,” Powell warned.
Wall Street fell as he spoke with the Dow Jones industrial average sliding nearly 600 points. By late afternoon, the blue-chip index was down 650 points, or 2.7%.
At the close the Dow was down 516.81 points, or 2.19%, to 23,247.97, the S&P 500 lost 50.15 points, or 1.75%, to 2,820 and the Nasdaq dropped 139.38 points, or 1.55%, to 8,863.17.
The Australian sharemarket is poised for sharp losses, with futures pointing to a drop of 65 points at 6.30 am at the opening later this morning. It had been down 89 points earlier in the session.
Wednesday saw deflation continued to appear – this time in producer prices. They fell 1.3% in April after consumer prices fell to an annual rate of 0.3% last month from 1.5% in March.
Producer prices were down 1.2% in the year to April. That’s the lowest annual rate since 2015 when oil prices staged their first big slide.
Talks have currently stalled between Congress and the Trump administration on more economic relief.
Democrats proposed a $US3 trillion ($4.7 trillion) package this week that would provide another round of stimulus checks and massive aid to states and municipalities, but many Republicans said they would not support the bill.
Congress and the White House have already approved nearly $US3 trillion in new programs since March to try and address the economic fallout from COVID-19 in all its mutant forms.