San Francisco Fed President Mary Daly said overnight that the phased reopening of economy “by definition translates to a slow recovery as we put toes in the water, see if the virus flares up when we go back to some economic activity.” “If it doesn’t, we can gain some momentum, people will be more confident; but if it does then people are going to be more cautious and that will slow the recovery even further,” she added. “Whichever scenario occurs, this is going to be a slow recovery and not a sharp rebound.” Also, under most scenarios “the economy is going to need more support, in all likelihood.”

Separately, Treasury Secretary Steven Mnuchin said Q2 is expected to be “pretty bad”. But with economy reopened safely, next year “we’ll be back to having a quick economy”. He added that President Donald Trump was open to more fiscal spending. However, “we’re not in a rush to do that this week or next week. We’re going to take our time.”

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.

Full speech here.

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Full speech here.

Cleveland Fed President Loretta Mester said she doesn’t support using negative rates as a monetary policy tool in the US. She noted,  “the effects on the banking system and money market funds would make me not want to use that as a tool”.

On the economy, she said in a speech that a “reasonable baseline outlook”for the economy to grow again in H2 and unemployment begins to move down, as stay-at-home restrictions are lifted. But “achieving this outcome depends on a number of things falling into place”. A lot of conditions is just “another way of saying there is considerable risk”.

“It isn’t difficult to imagine more pessimistic scenarios, especially if an upsurge in virus cases necessitates shutting down activity again or if there is considerably more harm in terms of business and personal bankruptcies or if instabilities in the banking system arise,” she said. “At this point, I think some of the more pessimistic outcomes are almost as likely as the reasonable baseline I just described.

Philadelphia Fed President Patrick Harker warned of the risk of reopening the economy too soon. In a more pessimistic scenario, there is a second wave of the coronavirus after reopening. “Not only would this be a health catastrophe, but it would reverse the recovery as well”, he said.

Harker also said that Q2 data will be “brutally painful. “What happens after that to a large extent depends on how the virus moves through our society, and our reaction to it in terms of balancing stay-at-home policies versus an intelligent — and I want to stress, intelligent — reopening.”

Dallas Fed Bank President Robert Kaplan expressed he objection to negative interest rates, for the effects it would have on the financial system, “on intermediaries, on money markets”.

“I would be against negative interest rates,” Kaplan told CNN International. “I’m a skeptic whether negative interest rates would actually be helpful, or whether the help would be outweighed by the harm it would do to the financial sector.” “So I personally am not a fan or a proponent of negative interest rates.”

Minneapolis Fed President Neel Kashkari also said policymakers have been pretty unanimous opposing negative interest rate. While he prefer not to say never on negative rates, there are other things Fed could do first. On the economy, he reiterated the view that “we are not going to fix the economy until we get our hands around the virus.” “We might be in this for a long time.”