Fed debates longer-term crisis-fighting plan, minutes show

(Reuters) – Federal Reserve policymakers, still working to fully roll out a multi-trillion-dollar effort to shore up financial markets and an economy cratered by the coronavirus pandemic, last month dove into a new debate: how best to support the economy during a recovery they now agree could be slower and more fraught than initially thought.

Among ideas U.S. central bankers discussed at April’s policy-setting meeting, according to minutes released Wednesday: more detailed guidance for the path of short-term interest rates, and capping long-term interest rates.

The Fed used the former in the last crisis; the latter would be a first for the Fed.

There was no discussion of negative interest rates, a controversial approach to policy supported by U.S. President Donald Trump and in use in Europe and Japan, but seen by U.S. central bankers as risky and ineffective.

With tens of millions of Americans without work in an economy expected to shrink at its fastest rate ever amid widespread business shutdowns to limit the virus’ spread, the Fed has embarked on an all-out effort to calm markets, forestall mass bankruptcies, and set the stage for a faster recovery.

It has slashed interest rates to near zero, bought trillions of dollars of bonds, and initiated a raft of lending programs, including one for medium-sized businesses which it hopes to launch later this month.

At their April 28-29 meeting, policymakers re-upped a pledge to keep interest rates near zero until they are confident the U.S. economy is on track to recovery, but they also were sharply focused on continuing to deliver support to a nation that some worried could experience a “protracted period of severely reduced economic activity,” especially if new waves of infection emerged.

“While participants agreed that the current stance of monetary policy remained appropriate, they noted that the Committee could, at upcoming meetings, further clarify its intentions with respect to its future monetary policy decisions,” according to the minutes, released Wednesday with the usual three-week lag.

Some participants called for more precise forward guidance for the path of interest rates, like tying any change to rates to achieving specific economic milestones on unemployment or inflation, or to specific dates, an approach the Fed used during the last crisis.

Other possibilities discussed included giving guidance on bond purchases, the minutes showed, and using Treasury purchases to cap long-term borrowing costs, an approach employed by some other global central banks.

Completing a monetary policy framework review launched last year, several policymakers thought, could also help clarify the Fed’s policy intentions.

“Fed officials remain concerned the pandemic could have more long-lasting effects,” said Paul Ashworth, chief U.S. economist for Capital Economics.

Participants overall agreed that their recent actions had been “essential in helping reduce downside risks to the economic outlook,” the minutes showed. They also repeated calls for further fiscal support, which so far has amounted to nearly $3 trillion even as lawmakers continue to debate the size and scope of a further rescue package.

But with a number of Fed policymakers seeing “a substantial likelihood of additional waves of outbreak in the near or medium term,” the minutes suggested central bankers may be reaching for better tools to navigate what could be a rocky recovery.

More than 36 million U.S. workers have filed unemployment insurance claims since mid-March when states began putting stay-at-home orders in place. Economists expect the unemployment rate to approach or surpass the 25% record set during the Great Depression. Forecasters say they expect the U.S. economy to shrink by as much as half this quarter, on an annual basis.

States are now easing restrictions, raising the hope of a gradual return to economic growth in the third and fourth quarters, but also the risk of new infections and more death.

More than 90,000 Americans have died of the highly contagious respiratory illness the virus causes, with daily deaths averaging 1,600 a day this month, according to Reuters data.

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Fed's Powell: 'Medical metrics' most important data for U.S. economy now: CBS

WASHINGTON (Reuters) – The most important data for the U.S. economy right now are the “medical metrics” around the coronavirus pandemic, Federal Reserve Chairman Jerome Powell said Sunday night in broadcast remarks where he outlined the likely need for three to six more months of government financial help for firms and families.

In an interview with CBS’s “60 Minutes” news program, Powell repeatedly returned to health issues as central to the success of a U.S. economic reopening, calling on Americans to “help each other through this” by adhering to social distancing rules as state and local governments begin to lift restrictions on social and economic activities.

“If we are thoughtful and careful about how we reopen the economy so that people take these social distancing measures forward and try to do what we can not to have another outbreak…then the recovery can begin fairly soon,” Powell said.

States are now easing restrictions imposed to slow the spread of the coronavirus. That has raised the hope of a gradual return to normal, but also has increased the risk of new infections. As Congress debates possible further economic relief, Powell has stretched the limits of typical central bank commentary, directly calling for more fiscal spending. In Sunday’s interview, he even urged people to wash their hands and wear masks to aid the recovery.

Under the best of circumstances it will be a long road, Powell said, with additional job losses likely through June, a rebound that takes time to “gather steam,” and some parts of the economy like the travel and entertainment industries possibly under pressure until there is a vaccine.

The economic devastation already has been severe. Powell said unemployment may hit 25% before it begins to fall, and gross domestic product may contract at an annualized rate of perhaps 20% in the April through June period. Those are levels reminiscent of the Great Depression in the 1930s, though Powell said he thought a prolonged crash of that magnitude remains unlikely.

“Assuming there is not a second wave of the coronavirus, I think you will see the economy recover steadily through the second half of this year,” he said. “For the economy to fully recover people will have to be fully confident and that may have to await the arrival of a vaccine.”

In the meantime, he said, the Fed and Congress may need to do more to ensure people can pay their bills. U.S. lawmakers beginning in March committed $3 trillion to offset job losses and other economic troubles related to the pandemic. They are debating whether to do more. The Fed has approved a suite of programs as well to help businesses and financial markets function during the pandemic, and to try to limit personal and corporate bankruptcies.

Powell, who appears before the Senate Banking Committee Tuesday to discuss how those rescue efforts are working, on Sunday said a longer lifeline may be needed.

“By keeping people and businesses out of insolvency just for maybe three to six more months….we can buy time with that,” as health authorities work on virus control. “That kind of support may be appropriate.”

“We’re not out of ammunition,” Powell said of the central bank and its willingness to expand existing programs or add new ones. “Not by a long shot.”

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For Fed Chair Powell, March was pure madness as coronavirus response intensified

SAN FRANCISCO/WASHINGTON (Reuters) – A half-hour staff meeting in a secure location.

A 40-minute consultation with an infectious disease specialist.

Multiple days of “unscheduled telephone calls from home with staff and other government officials,” including Saturdays and Sundays.

These are just a few of the items on Fed Chair Jerome Powell’s March calendar, released on Friday, that chronicle a dramatic shift from warily watching the coronavirus to an all-out effort to bring policymakers, government officials and lawmakers on board for an economic support effort of unprecedented size and scope.

Though the calendar gives no details on what was discussed, it suggests an explosion of activity at the U.S. central bank unseen since the darkest days of the 2007-2008 financial crisis.

Powell’s sudden ramp-up in activity began on Feb. 28, with a flurry of calls to his central banker counterparts at the European Central Bank, among others. Those calls – including a 17-minute one with the head of the central bank in China, where the coronavirus outbreak had begun – continued for another two days as the Fed prepared its first concrete response to the coronavirus crisis: an emergency interest rate cut on March 3.

But that was only the beginning of a month packed with an exceptional number of meetings, some of which were quite unusual by the standards of Fed chair calendars, published monthly with a lag of four to six weeks.

Take, for instance, a Friday, March 6, late-afternoon phone call with someone identified only as an “outside expert.”

A Fed spokeswoman later said it was a telephone briefing with University of Texas Southwestern Medical Center’s infectious disease chief, Trish Perl.

Two days later, Powell held an hourlong Sunday morning meeting with fellow central bankers, and a second hourlong call that evening with staff.

The next day he and the staff met for a half hour in a “sensitive compartmented information facility,” a secure room usually reserved for classified information.

Fed policymakers met the following Sunday, conferencing by video their far-flung colleagues who participated from Fed regional banks across the country.

They slashed interest rates to zero and launched the first of nearly a dozen lending and other programs designed to keep financial markets from imploding.

They also aimed to cushion the economy from the oncoming shock of mass layoffs and business closures as the country began to shut down to slow the spread of the virus, the extent of which has only lately become clear as states report 30 million people sought unemployment insurance over the past six weeks.

Over the course of March, as cases of the coronavirus mounted and policymakers began to express more public concern, Powell spoke with Treasury Secretary Steven Mnuchin at least 11 times, the calendar shows. That is surely an undercount as the two worked out a range of corporate lending programs, some of which had never before been tried, to keep previously healthy businesses afloat.

Mnuchin told CNBC on March 26 that he had been speaking with Powell 30 times a day.

Powell met with two titans of markets: Larry Fink, chief executive of Blackrock and Ron O’Hanley, CEO of State Street. Both firms later were assigned roles helping to administer emergency Fed programs to help financial markets.

And he spoke with several lawmakers, including House Speaker Nancy Pelosi, who later said he had told her to “think big fiscally.”

Congress passed a $2.3 trillion rescue package in late March that included grants to small business and loans to firms in critical industries, as well as cash payments to American households and for the newly unemployed.

Powell also spoke once with President Donald Trump on March 23, during which it was reported that Trump, usually a vociferous Powell critic, gave him rare praise.

Powell’s calendar also shows how he personally adapted to stay-at-home orders that by the end of the month covered most of the U.S. population.

Powell’s last engagement that took place at the Fed’s Washington headquarters was the March 15 policy-setting meeting. After that he worked from home every day that month, his calendar shows, including weekends.

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Fed leaves rates near zero, sees virus-related risks lingering

WASHINGTON (Reuters) – The Federal Reserve on Wednesday left interest rates near zero and repeated a vow to use its “full range of tools” to shore up the U.S. economy amid an ongoing coronavirus pandemic that will not only slam growth in the near term but pose “considerable risks” in the medium term as well.

“We are doing all we can” to help American households and businesses weather the public health emergency, Fed Chair Jerome Powell told journalists at the end of a two-day policy meeting that was held via videoconference. He added that the novel coronavirus could threaten economic growth for another year.

“We will continue to use our tools to ensure that the recovery, when it comes, will be as robust as possible.”

For now, he said, monetary policy is calibrated appropriately, but added that could change. “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 said.

In a matter of weeks the U.S. economy has gone from historically low unemployment to seeing more than 26 million people file for unemployment benefits and the sharpest plunge in activity since the Great Recession, as authorities across the country shut down large swaths of industry and commerce to slow the spread of the virus.

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Gross domestic product declined at a 4.8% annualized rate in the first quarter, ending the longest expansion in U.S. history, the Commerce Department reported earlier on Wednesday.

Powell said he expects second-quarter GDP to shrink by double digits and for there to be significant increases in unemployment. It also will “take some time” for consumers to start spending again once the economy begins to reopen, he said.

In its statement the rate-setting Federal Open Market Committee sketched the extent of the pandemic’s effect so far, noting that “weaker demand and significantly lower oil prices are holding down consumer price inflation” and that “disruptions to economic activity here and abroad have significantly affected financial conditions and have impaired the flow of credit to U.S. households and businesses.”

The 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 Fed said, adding that it “is committed to using its full range of tools to support the U.S. economy in this challenging time.”

“The more significant comment is that the FOMC is concerned about the downside risk to the economic outlook over the medium term, suggesting they will remain extraordinarily accommodative in policy for several years to come,” said Guy LeBas, chief fixed income strategist at Janney Montgomery Scott in Philadelphia.

“When they stick their necks out and say they will use all their ammo, that’s a significant statement of support,” LeBas said.

U.S. stock markets pared some of the day’s strong gains after the release of the Fed’s statement before moving higher later in the session. The benchmark S&P 500 remained on track for its largest daily gain in nearly two weeks.

Yields on U.S. Treasury securities were little moved by the statement, while the dollar edged lower against a basket of key trading partner currencies.


The meeting was the first held by the Fed since it took emergency steps in March and April to stabilize financial markets, slashing interest rates to near zero and throwing a credit lifeline to businesses and local governments.

The Fed said it expects to maintain the target range for its benchmark overnight lending rate at the current 0% to 0.25% “until it is confident that the economy has weathered recent events and is on track to achieve its maximum employment and price stability goals,” the same phrasing it used in its last policy statement on March 15.

It also said it will continue to buy U.S. Treasuries and agency residential and commercial mortgage-backed securities in the amounts needed to support smooth markets, and to offer large-scale overnight and term repurchase agreement operations.

Powell said the Fed will use its tools “forcefully proactively and aggressively.”

(Graphic: America’s pandemic safety net link: here)

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NY Fed markets head says 'time is of the essence' in establishing new lending facilities

(Reuters) – The Federal Reserve responded rapidly to stem losses from a “synchronized global sell-off” to help markets function as investors fled to safety on worries about the coronavirus outbreak, a senior official at the New York Fed said on Friday.

The Fed is moving as quickly as possible to set up new emergency lending facilities to support credit markets and the economy, and its efforts are already helping to stabilize short-term funding markets, said Daleep Singh, head of the markets group at the New York Fed.

“The bottom line here is time is of the essence,” Singh said during a moderated discussion organized by the Money Marketeers of New York University. “The speed and the scale of downside pressure on the economy I think we’d all acknowledge is unprecedented in our lifetimes, so we’re doing whatever we can within our mandate to match that speed and scale.”

Singh said his team is running about 15 operations a day and that the Fed turned to vendors to set up some of the recently launched emergency lending programs so it could move quickly at a time when the market operations handled by staff were already at “record volumes.”

“The ominous reality was that a synchronized global sell-off had taken on a life of its own, with little prospect for self-correction,” said Singh, in his first public remarks since he became head of the markets group at the New York Fed earlier this year.

He recapped the steps the Fed has taken to help companies borrow by supporting the markets for commercial paper, corporate bonds and municipal bonds. The Fed’s efforts helped to stabilize short-term funding markets but some strain remains in the market for commercial paper, he said.

Programs set up by the Fed could be extended beyond the fall if needed to support market functioning, Singh added.

The Fed has partnered with several financial firms, including BlackRock, Pacific Investment Management Company (PIMCO) and State Street to set up some of the new liquidity programs quickly.

Singh said the New York Fed will pay close attention to those working relationships to address potential conflicts of interest and to minimize risks.

“We will proactively identify and address conflicts of interest – real or perceived – for anyone working on the facilities,” he said.

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Singh previously worked as a senior partner and chief U.S. economist at SPX Capital. He also worked at the Treasury Department from 2011 to 2017 in financial markets and as deputy assistant secretary for international affairs.

In his remarks on Friday, Singh said the Fed will be transparent by posting information online about eligible borrowers, the terms of the facilities and sharing answers to frequently asked questions.

“We look forward to engaging with our oversight bodies and those appointed under the CARES Act to ensure that the American people understand the steps we are taking on their behalf as faithful stewards of the public trust,” he said.

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NY Fed's Williams says economic pain likely to continue for 'some time'

April 17 (Reuters) – The shutdowns enacted to slow the spread of the coronavirus are likely to put a damper on the U.S. economy for some time, New York Federal Reserve Bank President John Williams said Friday during an interview with CNBC.

“I still think we have a lot of economic pain that we’re experiencing today and that’s likely to continue for some time,” said Williams. “I still think we’ve got some tough days ahead and that’s why we’re working so hard to support the economy during this period.”

Williams also repeated a view that it may take a few years for the U.S. economy to fully recover from the downturn caused by the coronavirus pandemic, a view he shared Thursday during a webinar hosted by the Economic Club of New York. (Reporting by Jonnelle Marte Editing by Chizu Nomiyama)

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Richmond Fed's Barkin: Employment numbers to get worse before getting better

(Reuters) – U.S. employment numbers will get worse amid the ongoing coronavirus outbreak before getting better, Richmond Federal Reserve President Thomas Barkin said in an interview with Bloomberg News.

U.S. employers cut 701,000 jobs last month, ending a record 113 straight months of employment growth, as a patchwork of state-ordered closures aimed at curbing the spread of the novel coronavirus began forcing businesses to shed employees, the U.S. Labor Department said.

Barkin said interest rates will be low for some time until the U.S. economy recovers from the hit it has taken from the virus, but added he will want to “normalize” rates when the economy has recovered and that it is not “healthy to be at zero forever.”

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