In a speech delivered online, Fed Chair Jerome Powell said that with the current coronavirus crisis “the path ahead is both highly uncertain and subject to significant downside risks”. Policies will, therefore, need to be “ready to address a range of possible outcomes”.
Powell also noted that “Fed has lending powers, not spending powers”. Fed’s loan could provide a “bridge” across temporary liquidity interruptions. As recovery “may take some time to gather momentum”, the passage of time can “turn liquidity problems into solvency problems”.
“Additional fiscal support could be costly, but worth it if it helps avoid long-term economic damage and leaves us with a stronger recovery,” he added. “This tradeoff is one for our elected representatives, who wield powers of taxation and spending.”
In the Q&A part, Powell reiterated that the issue of negative rates was revisited back in October. The FOMC minutes already noted that all member said it wasn’t an attractive policy tool. He added that the committee was not looking at negative rates as members believed Fed has tools that work.
