As the war on viruses rages on, the Fed comes out of the finger hole


WASHINGTON (Reuters) – The Federal Reserve has two main jobs awarded by Congress: to promote maximum employment and stable prices.

FILE PHOTO: U.S. Federal Reserve Chairman Jerome Powell speaks to reporters after the Federal Reserve slashed interest rates in an emergency measure designed to protect the world’s largest economy from impact of the coronavirus, in Washington, United States, on March 3, 2020. REUTERS / Kevin Lamarque

The US central bank begins a two-day political meeting on Tuesday with no control over either, and little ability to even judge where an economy battered by the coronavirus epidemic is going. Central banks, after all, do not lift lockdowns.

And in the upside-down world of the pandemic economy, businesses can help the economy the most by staying closed and workers may be better off not working, putting the world’s most powerful central bank in a hurry. supporting role, for who knows how long.

“In fact, I’m not looking at the economy for … answers,” on conditions the Fed may face later this year, Atlanta Fed Chairman Raphael Bostic said in a webcast at the beginning of the month.

“I am looking at the public health response and how we are handling this … As long as the virus continues to spread, we will have to continue to separate” and keep the economy in a state of lockdown.

The Fed, which has responded to the current crisis by lowering interest rates, resuming bond purchases and supporting credit markets, is expected to issue a policy statement at 2 p.m. EDT (6 p.m. GMT) on Wednesday.

Fed Chairman Jerome Powell is due to set up a video conference with reporters half an hour later.

The statement could begin to clarify how long the Fed intends to keep rates close to zero – the kind of objective-driven “forward guidance” that research finds is an effective policy tool.

It could also offer insight into how the Federal Free Trade Committee that sets policy believes the economy will evolve.

After cutting rates to zero in December 2008 in response to the global financial crisis, the Fed announced at its next meeting that it expected a gradual recovery to begin later that year. While a slow recovery began at the end of 2009, it was not until the fall of 2010 that the persistent improvement in the labor market took hold.

Giving prospects now can be an even trickier prospect.

Most US states still have home stay measures to curb the spread of the virus, while others are reopening. The number of cases of COVID-19, the respiratory disease that has killed more than 55,000 people in the United States, continues to rise.

Against this backdrop, Fed policymakers will find it difficult to say much new that is unlikely to be overtaken by developments on the public health front.


Several other major central banks are meeting this week under similar circumstances, with their options and information dependent on the spread of the pandemic and the world’s response to it.

Global central bankers have been running at firefighters’ speed to reopen some of the same emergency credit programs used in the last crisis more than a decade ago, when their role was more crucial in addressing the problems that had started on financial markets. They looked at more expansive tools given the scale of the coronavirus pandemic.

Interest rates have already been reduced to near zero or below, bond buying has resumed and financial markets appear to be functioning more normally for now.

But policymakers are under no illusions that they can solve this crisis. At the end of its meeting on Monday, the Bank of Japan said it was too uncertain to even release its usual forecast, releasing an estimated range of results instead.

Even these were based on the pandemic diminishing in the second half of the year, a prospect to say the least uncertain.

In the Fed’s case, a blatant national statistic – the number of people who have applied for unemployment assistance has exceeded 26 million in recent weeks and continues to rise – offers insight. Beyond that, however, it’s a patchwork of across 50 states, where health outcomes and the sentiment of elected officials on how and when to restart economic activity differs hugely.

Never before, for example, have Fed officials had to analyze the implications of New York and California states remaining in a near-complete standstill while Georgia, Colorado, Florida and others stood up.

“This is an unusual meeting,” said St. Louis Fed Chairman James Bullard, who suggested that beyond reviewing the programs approved to date, the Fed could try to use the meeting to say how much we do not know.

The current data, with soaring jobless claims and declining production numbers, “is not very significant compared to US macroeconomic history,” Bullard said on a conference call with reporters ahead of the period. Fed ban before the meeting.

“If we can get this idea across and stop extrapolating people from past experience, that would be a useful shift in perspective and help build the bridge to the other side of it,” he said. he declares.

So far, the strength of this bridge is unclear. The Fed has programs in place to maintain credit in almost every corner of the economy, and more can be done.

Yet policymakers have also noted, with some concern, the difficult deployment of budget support as the federal government stumbled to secure quick loans to small businesses and state unemployment insurance systems collapsed under the influence. torrent weight of new demands.

At the same time, these frightening economic figures have prompted some state governors to tell companies they could restart.

Georgia reopened theaters on Monday, for example, weeks before Bostic, in an earlier public appearance, said he believed the state would be able to restart its economy.

It’s an experiment that will provide information back and forth to the Fed – whether customers even return to reopened businesses, and if so, another wave of infections returns with them.

Reporting by Howard Schneider; Editing by Dan Burns and Paul Simao

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