Jay Powell, the chair of the Federal Reserve, has said that “additional policy measures” may be needed from the US central bank and fiscal authorities to prevent greater long-term damage to the economy from the coronavirus pandemic. “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.
Mr Powell warned that “deeper and longer recessions” tended to leave “lasting damage to the productive capacity of the economy” — and the US risked an “extended period of low productivity growth and stagnant incomes”. “We ought to do what we can to avoid these outcomes, and that may require additional policy measures. At the Fed, we will continue to use our tools to their fullest until the crisis has passed and the economic recovery is well under way,” he said in prepared remarks.
Mr Powell signalled that the White House and Congress should be considering additional fiscal stimulus, on top of the $3tn already passed since the start of the crisis. “The recovery may take some time to gather momentum, and the passage of time can turn liquidity problems into solvency problems,” he said. “Additional fiscal support could be costly, but worth it if it helps avoid long-term economic damage and leaves us with a stronger recovery. This trade-off is one for our elected representatives, who wield powers of taxation and spending,” he said. Among people who were working in February, almost 40 per cent of those in households making less than $40,000 a year had lost a job in March Jay Powell, Federal Reserve chairman The Fed has already delivered in quick succession a series of emergency measures to shore up financial markets and the economy. In addition to slashing interest rates to zero and uncapping the quantity of US Treasuries and agency mortgage-backed securities it committed to buying, the Fed has rolled out a number of new facilities to lend unprecedented support to critical debt markets, including those for corporate debt and municipal bonds.
Many of these programmes have yet to become fully operational, and the Fed has pledged to continue to adjust the terms if warranted by underlying market conditions. Trading conditions in many of the markets targeted by the Fed have improved in recent weeks, but investors warn that volatility could once again resurface should the economic outlook fail to improve even as cities and states ease the policies they put in place to curtail the spread of coronavirus.
In his prepared remarks, Mr Powell did not offer any clues about specific actions the Fed might take in the future. Some economists have been calling for the US central bank to firm up its forward guidance, pledging to maintain interest rates close to zero until the economy reaches certain milestones in its recovery, with unemployment, at 14.7 per cent in April, dropping to a certain level.
Donald Trump, the US president, has called for the Fed to move to negative rates — an option that Mr Powell has dismissed as “not an appropriate policy response” for the US. “As long as other countries are receiving the benefits of Negative Rates, the USA should also accept the “GIFT”. Big numbers!,” Mr Trump wrote on Twitter on Tuesday. Mr Powell’s comments came as many states are moving to remove restrictions to economic activity imposed because of the coronavirus outbreak, even as the US continues to struggle to contain the spread of the disease.
The Fed chair noted that the economic toll had already been severe, particularly in low-income communities — “least able to bear it”. He pointed to a Fed survey due to be released on Thursday that illustrated the burden on struggling households. “Among people who were working in February, almost 40 per cent of those in households making less than $40,000 a year had lost a job in March,” Mr Powell said. “This reversal in 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”.