The New York Times reported this week that Jerome Powell, chair of the Federal Reserve, told a University group last week that “central bankers had seen the need to use their tools to their fullest extent” as coronavirus lockdowns shuttered economies around the globe and caused United States unemployment to soar.
“We felt called to do what we could,” Powell commented Friday during a Princeton University webinar.
His comments emphasized that the Fed “crossed a lot of red lines that had not been crossed before,” and added that he was comfortable with what the Fed had done given “this is that situation in which you do that and you figure it out afterward.”
Powell called attention to the variety of actions the Fed has taken to support the economy: cutting interest rates to near-zero, rolling out unlimited bond purchases to soothe markets and initiating emergency lending programs to keep credit flowing to businesses and state governments.
He also noted that several of those efforts “tiptoe into untested territory” for the central bank, including programs that lend to medium-sized businesses, buy corporate bonds and purchase debt from states and large cities. “We work very hard to explain ourselves to the general public,” he said, explaining that the Fed is disclosing information on its lending efforts and discussing them regularly with lawmakers.
And, he pointed out that “the programs come at a time of dire need.” Economists are bracing for a deep plunge in economic output in the second quarter -- from April through June -- and most predict only a gradual recovery over the remainder of the year. It could be months or years before output returns to its pre-crisis level, and the unemployment rate falls to the 50-year lows that prevailed before the coronavirus lockdowns precipitated a wave of layoffs, NYT said.
More than 40 million people, about one of every four American workers, have filed for unemployment benefits since mid-March, based on recent data. A report next Friday is expected to show that the unemployment rate jumped to 19.5% in May based on the median estimate in a Bloomberg survey of economists.
Powell also noted that the “burdens” of job losses are falling on those least able to bear them, in lower-paid service work, exacerbating economic inequalities.
“Those are the people being laid off, who have the least financial resources,” he said. “It’s falling on women to an extraordinary degree,” and “there’s tremendous inequality” in how the pandemic is affecting the population.
He also voiced concern that if a second round of virus infections hits America, it could lead to a more delayed economic rebound.
“A second wave would really undermine public confidence and might make for a significantly longer and weaker recovery,” he said, after explaining that “a full recovery of the economy will really depend on people being confident that it’s safe to go out.”
States are reopening bit by bit. This means that more public spaces are available for use and more and more businesses are being allowed to open again. The federal government is largely leaving the decision up to states and some state leaders are leaving the decision up to local authorities. Even if you aren’t being told to stay at home, “it’s still a good idea to limit trips outside and your interaction with other people.”
While Powell stressed the Fed’s willingness to act when it comes to emergency lending, he reiterated that the central bank is not looking to cut interest rates into negative territory, something central banks abroad have done in an effort to stimulate their economies.
Powell has frequently warned that the United States is experiencing an economic hit “without modern precedent,” one that could permanently damage the economy if Congress and the White House do not provide sufficient financial support.
For example, in mid-May he warned as discussions of additional rescue measures ran aground as Democrats proposed sweeping new programs and Republicans voiced concerns over the swelling federal budget deficit. “There is a sense, a growing sense I think, that the recovery will come more slowly than we would like. “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.”
So, we will see. Given all the uncertainties that now abound, the hoped-for recovery likely is at least as fragile as the Fed believes it to be and the national debate over emergency economic policies should be watched closely as the season progresses, Washington Insider believes.
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