Brookings Insitution Event with Fed Chair Powell
Brookings Institution
Federal Reserve Chair Jerome Powell on COVID-19 and the Economy
Thursday, April 9, 2020
Opening Remarks
Participants:
- John Allen, President, The Brookings Institution
- Jerome Powell, Chair, The Federal Reserve
- David Wessel, Director, The Hutchins Center on Fiscal and Monetary Policy; Senior Fellow, Economic Studies, The Brookings Institution
John Allen, President, Brookings Institution, commended Chair Powell for his calm and decisive leadership as well as the Federal Reserve (Fed) for its quick and forceful response in the face of this public health crisis. He specifically noted that the Fed developed creative solutions to ensure the continuing flow of credit to American households.
Powell began his remarks by stating that the challenge we face today is first and foremost a public health crisis before thanking the frontline healthcare professionals who are risking their lives to stem the spread of COVID-19. He continued that the CARES Act is a critical initial step in that it provided $2.2 trillion in relief to those who need it most. Powell then turned to what the Fed has done, and what it can do, in terms of providing relief, stability and support for a vigorous economic recovery when the time comes. He specifically highlighted the commitment to keep interest rates at near-zero levels for the near future as well the forceful action taken by the Fed to address certain market dislocations and disfunctions as a result of this crisis. He reported that due to Fed intervention, these markets have generally improved.
Powell emphasized that these recent Fed actions are emergency lending powers, not spending powers, and that, with the consent of the Secretary of the Treasury, the Fed plans to continue to deploy these powers forcefully, proactively and constantly until the economy is well on the road to recovery. He stated that while many borrowers will benefit from these programs, there are many other entities that will need direct fiscal support without the burden of a loan. Powell outlined his belief that the economic rebound, when it arrives, will be robust due to the strong economic footing on which the American economy entered this crisis.
Question & Answer
Powell began that he expects that the second quarter will be a challenging period in terms of economic output due to the significant amount of businesses being shut down and the increases in unemployment claims.
In response to a variety of questions from Wessel regarding the limits on Fed lending and ongoing Fed facility activity, Powell responded that the Fed is executing these programs with the consent of the Treasury Department as well as the fiscal backing from Congress. He stated that the Fed will continue to focus on key areas of the real economy that require support with these programs and that high inflation is not a first order concern at this moment in time. Further, Powell emphasized that when the Fed begins to pull back on these programs, they will do so in a gradual, deliberate and predictable manner to ensure that the economy is and remains on solid footing throughout this process of telegraphed withdrawal.
Powell also highlighted that while the Fed Board is not elected, it does remain accountable to our elected officials and he commended Congress, via the Dodd-Frank Act, for strengthening this connection by requiring the Fed to get approval from the Secretary of the Treasury for actions as a lender of last resort. Powell said that he believes that this level of accountability is healthy and that the Fed does not pick winners and losers or make decisions about specific firms. Instead, the Fed must create programs which are broad-based and help classes of borrowers. Powell continued that while nine different Fed facilities have already been put in place to address current areas of priority, the Fed stands ready to add new facilities as well as adapt and expand existing ones as needed.
In response to a question from Wessel on how these ongoing Fed activities help the average worker, Powell stated that the most important factor is for people to heed the advice of our healthcare authorities in staying home and healthy. He then emphasized the importance of the expanded unemployment insurance provided under the CARES Act before outlining that the Fed is working to provide stability and lower interest rates as well as use its tools to keep the financial markets running in order to avoid further damage to the economy and set the foundation for a robust economic recovery.
When asked whether Secretary Mnuchin’s recently stated end of May goal for reopening the economy is realistic, Powell responded that this is not a judgement that the Fed can make but that the Fed will work to develop a plan, alongside all levels of federal, state and local government, for an effective reopening of the economy whenever the time comes..
When asked whether he has any advice for Congress, Powell noted that the Fed is not responsible for fiscal policy, and as such, they do not give advice to Congress on this front. He did state that generally, a significant number of Americans will need direct fiscal support and that he believes that further direct support will be needed and helpful. He emphasized that Americans are making these sacrifices for the common good, and as such, the government should work to make them whole as best it can.
Powell also indicated that now is not the appropriate time to restrict dividends, particularly given that our largest firms have already restricted stock buybacks which account for more that 70 percent of capital distributions in the United States. He emphasized that our banks are highly capitalized with high quality capital.
Finally, Powell noted that the Fed is monitoring the mortgage market carefully, as demonstrated via the purchasing of mortgage-backed securities, and will continue to do so, especially as it relates to mortgage servicers.
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