ADVERTISEMENT

Powell Says More Action Needed to Shield U.S. Economy From Virus

FOMC said in a unanimous statement that it “will use its tools and act as appropriate to support the economy.”

Powell Says More Action Needed to Shield U.S. Economy From Virus
Jerome Powell, chairman of the U.S. Federal Reserve, speaks during a news conference in Washington, D.C., U.S. (Photographer: Andrew Harrer/Bloomberg)

(Bloomberg) -- Federal Reserve Chairman Jerome Powell urged lawmakers to deliver more fiscal stimulus to shield the U.S. economy from the coronavirus as he warned of a weak recovery even once the pandemic passes.

“Economic activity will likely drop at an unprecedented rate in the second quarter,” Powell told a video press conference Wednesday. “It may well be the case that the economy will need more support from all of us, if the recovery is to be a robust one.”

Powell Says More Action Needed to Shield U.S. Economy From Virus

The Federal Open Market Committee held interest rates near zero and said in a unanimous statement that it “will use its tools and act as appropriate to support the economy.” Officials also cautioned the pandemic would weigh on the economy over the medium term. Data earlier on Wednesday showed the economy had already shrunk in the first quarter at the fastest pace since 2008.

Powell Says More Action Needed to Shield U.S. Economy From Virus

The central bank has mounted an unprecedented push since last month to limit the economic harm of the virus, which has plunged the global economy into recession and likely sent U.S. unemployment into double digits as businesses shuttered to limit contagion.

Lawmakers have also acted, with the Congress approving -- and President Donald Trump signing -- a $2.2 trillion rescue package last month.

“Both the depth and length of the economic downturn are extraordinarily uncertain and will depend in large part on how quickly the virus is brought under control,” Powell told reporters, playing down the prospects for a quick, v-shaped recovery and noting the severe effects of the lock-down that has brought the economy to an “abrupt halt.”

U.S. stocks held gains as investors absorbed the Fed chief’s sober message -- delivered for the first time via the type of video conference that has become synonymous with working from home as Americans hunker down. Yields on 10-year Treasury notes edged up slightly to 0.62%.

Policy makers have slashed rates and launched a massive bond-buying campaign to stabilize markets that had become dangerously unsettled amid the pandemic. Their benchmark rate has stood in a range of zero to 0.25% since mid-March.

The central bank’s Board of Governors has also announced nine lending programs, pledging to make funds available to banks, companies and municipalities in an unprecedented use of the Fed’s emergency powers. Only four of the facilities are up and running with no set time frame yet for those remaining to become operational -- including those aimed at Main Street.

Sober message

Powell emphasized several times the importance of fiscal policy to help and said “this is not the time” to allow concerns about the size of the federal deficit to hinder the scale of the response.

“I think everyone is suffering here but I think those who are least able to bear it are the ones who are losing their jobs,” Powell said. “It is heartbreaking to see all that threatened right now.”

Officials Wednesday left unchanged their vague guidance on the future path of rates. The statement repeated language from March 15 saying the committee would keep the benchmark target range near zero “until it is confident that the economy has weathered recent events and is on track to achieve its maximum employment and price stability goals.”

Policy Patience

Powell stressed the Fed would be patient and is “not going to be in any hurry to move rates up,” which was viewed as an assurance rates would be held near zero for several years.

“Talk about the Fed lifting off should be tabled,” said Ryan Sweet, head of monetary policy research at Moody’s Analytics. “That is a discussion for well after the economy is on the other side of Covid-19. A hike is likely years away.”

A recent survey of Bloomberg economists projected rates staying near zero for three or more years.

Asset Purchases

Regarding asset purchases, the FOMC used wording similar to last month, saying the buying of Treasuries and mortgage-backed securities will continue “in the amounts needed to support smooth market functioning, thereby fostering effective transmission of monetary policy to broader financial conditions.”

Powell said these purchases had “substantially” helped ensure smooth market functioning and the pace of purchases has been trimmed as conditions calmed down.

Policy makers also began to extend cautiously the time frame within which they see the economic blow from the virus lasting, though they are still offering no precise forecast.

“The ongoing public health crisis will weigh heavily on economic activity, employment, and inflation in the near term, and poses considerable risks to the economic outlook over the medium term,” the committee said.

©2020 Bloomberg L.P.