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| DATE | 2020-05-14 |
| FROM | Ruben Safir
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| SUBJECT | Subject: [Hangout - NYLXS] baill outs
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http://www.mrbrklyn.com/resources/Powell%20Says%20Washington%20Will%20Need%20to%20Spend%20More%20to%20Battle%20Downturn%20-%20WSJ.pdf
Powell Says Washington Will Need to Spend
More to Battle Downturn
‘Reversal of economic fortune has caused a level of pain thatis hard to
capture in words,’ says Fed leader
Federal Reserve Chairman Jerome Powell, shown testifying before a U.S.
Senate committee
earlierthis year.
PHOTO: STEFANI REYNOLDSCNPZUMA PRESS
By
Updated May 13, 2020 603 pm ET
Nick Timiraos
For example, if small businesses that were viable enterprises before the
crisis fail, “we would
lose more than just that business. We lose something more fundamental,”
he said. “And it won’t
be able to be replaced quickly.”
His remarks revealed concern about a slower, more difficult rebound than
anticipated less than
two months ago, when lawmakers shoveled short-term funds to households
and businesses and
set aside money for the Fed to launch trillion-dollar lending programs.
“The scope and speed of this downturn are without modern precedent,
significantly worse than
any recession since World War II,” Mr. Powell said.
He said the central bank wasn’t considering plans to cut its benchmark
federal-funds rate
below zero after it slashed the rate to near zero in March.
Futures markets have implied investors see rising prospects of negative
interest rates in 2021
even though the central bank’s rate-setting committee last October said
it wouldn’t favor such
a policy tool, which has had mixed results in Europe and Japan and which
the Fed worries could
hinder new bank lending.
“The committee’s view on negative rates really has not changed,” said
Mr. Powell. “This is not
something that we’re looking at.”
Congress has appropriated nearly $2.9 trillion so far to support
households, businesses, healthcare providers and state and local
governments, or around 14% of national economic output, the
“fastest and largest response for any postwar downturn,” said Mr.
Powell. “It may not be the
final chapter, given that the path ahead is both highly uncertain and
subject to significant
downside risks.”
The unemployment rate, which just three months ago sat near a 50-year
low, jumped in April to
its highest level since the Great Depression of the 1930s, wiping out a
decade of job gains in a
single month.
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Mr. Powell said it was possible the jobless rate would peak and start to
decline in the next few
months but signaled concern that it could remain at an elevated level
for a long time.
Early data revealed the downturn had hit households least able to bear
it. Mr. Powell previewed
a Fed survey to be released Thursday showing that among people who were
working in
February, nearly 40% of those 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,”
he said.
Mr. Powell also cited the unusual cause of the current downturn in
gently pushing back against
concerns that policy makers should limit relief to avoid bailing out
individuals and businesses
that took on too many risks.
Recessions have typically been caused by a sharp rise in oil prices,
inflation or economic and
financial imbalances that trigger an abrupt increase in interest rates.
“The virus is the cause,
not the usual suspects—something worth keeping in mind as we respond,”
Mr. Powell said.
Efforts to secure new economic relief measures have been bogged down in
Washington in
recent days, with the Trump administration and congressional Republicans
saying they want
more time to see how the economy is responding to the relief measures
already adopted and to
steps by state and local leaders to allow more commerce to resume.
House Democrats on Tuesday released a roughly $3 trillion bill to battle
the health and
economic effects of the coronavirus pandemic, staking out a position
ahead of talks with Senate
Republicans who are wary of additional spending. The House is expected
to return Friday to
Washington to vote on the bill, but negotiations with Republicans aren’t
expected to start until
later this month at the earliest.
The Fed has responded aggressively by slashing rates and buying more
than $2 trillion in
Treasury and mortgage securities to stabilize financial markets, and
promising to lend trillions
more, backed by more than $200 billion in funds from the Treasury
Department, to support
businesses and state and local governments.
Mr. Powell walked through the unusual uncertainty facing economic policy
makers, including
how quickly and sustainably the coronavirus will be brought under
control, the risk of new
outbreaks as social-distancing measures ease and how quickly medical
advances can restore
confidence in households and businesses to spend and invest.
The Fed chairman warned of long-lasting damage that could follow. Deep
and long recessions
leave millions out of work for spells that could erode their skills and
leave them in greater debt.
Failures of thousands of small businesses would “destroy the life’s work
and family legacy of
many businesses and community leaders” and erase a main source of job
creation when any
recovery comes, he said.
While there is little political support in the U.S. for negative
interest rates, President Trump
said he thinks the Fed should use the tool for competitive reasons as
long as other countries in
Europe and Japan use them.
Mr. Trump appointed Mr. Powell to his job two years ago and was sharply
critical of the Fed for
not cutting rates more aggressively last year when the economy was
healthier. He lauded the
central bank leader Wednesday, even though he said he disagreed with Mr.
Powell on negative
interest rates.
“He’s done a very good job over the last couple of months,” said Mr.
Trump. “I call him my
‘M.I.P.’—most improved player.”
Write to Nick Timiraos at nick.timiraos-at-wsj.com
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