Powell Says Fed Will Act ‘Forcefully’ to Help U.S. Recovery
Powell Says Fed Will Act ‘Forcefully’ to Enable U.S. Recovery
(Bloomberg) -- Federal Chairman Jerome Powell said the U.S. central bank was committed to using all its powers “forcefully, pro-actively, and aggressively” to help the country recover from the devastating coronavirus pandemic, even as he laid out the boundaries to that authority.
“Many of the programs we are undertaking to support the flow of credit rely on emergency lending powers that are available only in very unusual circumstances,” Powell said Thursday in a speech delivered online from the central bank’s headquarters in Washington.
“We will continue to use these powers forcefully, pro-actively, and aggressively until we are confident that we are solidly on the road to recovery,’ he said.
Aggressive Measures
His remarks came soon after the Fed made another slew of announcements Thursday, rolling out new emergency lending programs and beefing up existing facilities unveiled in recent weeks.
The sweeping package makes as much as $2.3 trillion in additional aid available, including $600 billion for companies and $500 billion to purchase short-term debt directly from state and local governments.
During a question and answer session that followed, Powell said there was “no limit” to the dollar amounts the Fed can deploy if a program fell within its legal authority.
Powell said the Fed’s main attention now was on its lending programs and making sure credit was flowing throughout the economy, not on traditional monetary policy.
“Our principal focus is not on adjusting what we see as quite an appropriate stance of monetary policy, at least for the next few months,” he said.
The central bank has cut the short-term interest rate it controls effectively to zero and promised to keep it there until the economy has weathered the coronavirus crisis and is on track to achieve the Fed’s goals of maximum employment and 2% inflation. It also has launched an open ended program to buy Treasury and mortgage-backed securities.
Mortgage Industry
He also suggested the Fed may be considering some kind of support for companies that play an important role in the home mortgage servicing industry.
“We’re watching carefully the situation with the mortgage servicers,” he said. “We certainly have our eyes on that as a key market that does support households and consumer spending.”
Diane Swonk, chief economist at Grant Thornton LLP, said bolstering mortgage servicers would be a critical move.
“We have a unique opportunity to have housing drive us out of recession,” she said. “That requires infrastructure of mortgage finance.”
Powell acknowledged that Americans are in for a painful period as businesses are damaged and unemployment surges. Still, he sounded a note of optimism over the recovery he expects to follow once the pandemic threat fades.
“When the spread of the virus is under control, businesses will reopen, and people will come back to work,” he said. “There is every reason to believe that the economic rebound, when it comes, can be robust.”
He was careful to avoid predicting when that recovery may take place.
Elected Officials
As the Fed broke new ground in deploying emergency measures, Powell took care to draw lines around what he saw as the appropriate role of the central bank as compared to the authority held by elected officials.
“The critical task of delivering financial support directly to those most affected falls to elected officials, who use their powers of taxation and spending to make decisions about where we, as a society, should direct our collective resources,” he said.
Powell returned to that theme later in the speech, emphasizing Fed actions stem from “lending powers, not spending powers.” He then added, “The Fed is not authorized to grant money to particular beneficiaries.”
Stephen Stanley, chief economist at Amherst Pierpont Securities, said the comments pointed to appropriate division between fiscal and monetary authorities at at time when some lawmakers are pressuring the Fed to do more.
“They may be lobbying the Fed, but they’re barking up the wrong tree,” he said. “They should be lobbying Treasury.”
©2020 Bloomberg L.P.