Fed’s Bostic Says Everything on the Table for Crisis Tools
Must develop new tools to respond to the economic crisis sparked by the coronavirus, says Fed’s Bostic
(Bloomberg) -- Federal Reserve Bank of Atlanta President Raphael Bostic said the central bank and U.S. government must develop new tools to respond to the economic crisis sparked by the coronavirus, drawing on the creativity shown during the 2008 financial crisis.
“At this stage everything is on the table,” Bostic said Tuesday in a telephone interview with Bloomberg News and Reuters. “We will continue to respond in ways that are appropriate.”
The Fed slashed its benchmark interest rate by a full percentage point to near zero Sunday and promised to boost its bond holdings by at least $700 billion in an effort to bolster the U.S. economy from the impact of the coronavirus. Bostic, who is not a voter on the Fed’s policy-setting committee this year, said he fully supported those moves.
The central bank followed that Tuesday by restarting a financial crisis-era program to help U.S. companies borrow through the commercial paper market.
“That was not the last step we will be thinking of acting on,” Bostic said, citing the crisis-era Term Auction Facility as being among the items under discussion.
The Atlanta Fed chief said he was particularly concerned about the thousands of small businesses, including restaurants, that could struggle to survive because of closures prompted by the virus. He pointed out that during the Great Recession, the Fed used its operating discretion to take bold actions.
“We all need to be thinking about as a Fed and also as a government is how to do we creatively provide support to those institutions most exposed,” he said. For small businesses, “their challenges are going to be more acute and come faster.”
Wall Street economists are rushing to declare that a U.S. recession may already be under way as shutdowns of shopping, restaurants, bars, gyms and other services proliferate. Goldman Sachs is forecasting a 5% drop in gross domestic product in the second quarter, which its economists predicted would be classified as a recession.
Cleveland Fed President Loretta Mester said earlier on Tuesday that “there will be a sharp pullback in economic activity, at least in the near term, as the country focuses on tackling the challenges posed by the virus.”
Bostic wasn’t ready to concede a recession was inevitable, but said the second quarter would be “rough” for families and businesses. He fully supported the Fed’s moves on Sunday, so that once the virus’s impact slows, there would be “maximum stimulus in the economy so we can get back on our footing as quickly as possible.”
The Trump administration is backing sending direct payments of $1,000 or more to Americans within two weeks as part of an $850 billion plan to support the economy.
In a separate statement, Kansas City Fed President Esther George said that “for the banking system, we stand ready to lend through the discount window and address any regulatory or supervisory concerns that may surface.”
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