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Comment: Chair Powell reminds that the Fed has done a lot and is ready to do more

In his introductory remarks in a webcast at the Peterson Institute on Wednesday, Chair Jerome Powell reminded that the Fed has “acted with unprecedented speed and force” in its response to the crisis, acting in “unusual and exigent circumstances” as required by the Federal Reserve Act to serve as lender of last resort and get the financial system through the present public health crisis. As he has since the start of the response to the COVID-19 pandemic, Powell noted that it will also take fiscal authorities’ ability to provide funding and relief to complement the efforts by the Fed to ease stress in financial markets. He noted the “unprecedented” fiscal response so far.

Selected histories of the Fed’s asset purchases, credit facilities, and supervisory and regulator relief action during the crisis are available in the Whetstone Analysis Reference Library.

Powell also highlighted that the crisis response has meant that the collapse in the labor market has been borne by those least able to afford it. He mentioned a Fed survey set for release on May 14 that “reflects findings similar to many others: Among people who were working in February, almost 40 percent of those in households making less than $40,000 a year had lost a job in March. This reversal of 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.”

Powell touched on the difficulty in forecasting the economic outlook, and the steps taken to date “may not be the final chapter, given that the path ahead is both highly uncertain and subject to significant downside risks.” With that in mind, it sounds like Powell is cautioning that the Fed is still in response mode and anything it does at present should be considered as damage control, not stimulus.

The FOMC next meets on June 9-10. This meeting is one at which the FOMC would normally update its Summary of Economic Projections (SEP). It declined to issue one at the March 17-18 meeting. It will probably not repeat that at the upcoming deliberations, but it will emphasize the greater than usual uncertainty behind the projections. In any case, the SEP is often used to gauge the path of short-term rates. Forward guidance says that won’t happen until confidence in the economy and the economic outlook is restored to something approaching normal. So it is likely that a new SEP does not risk sending a contradictory message. The SEP will have high consensus on no change in interest rate policy for a very long stretch.

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