Jerome H Powell: Semiannual Monetary Policy Report to the
Congress
Testimony by Mr Jerome H Powell, Chair of the Board of Governors of the Federal Reserve
System, before the Committee on Banking, Housing, and Urban Affairs, US Senate, Washington
DC, 16 June 2020.
* * *
Chairman Crapo, Ranking Member Brown, and other members of the Committee, thank you for
the opportunity to present the Federal Reserve's semiannual
Monetary Policy Report.
Our country continues to face a difficult and challenging time, as the pandemic is causing
tremendous hardship here in the United States and around the world. The coronavirus outbreak
is, first and foremost, a public health crisis. The most important response has come from our
health-care workers. On behalf of the Federal Reserve, I want to express our sincere gratitude to
these dedicated individuals who put themselves at risk, day after day, in service to others and to
our nation.
Current Economic Situation and Outlook
Beginning in mid-March, economic activity fell at an unprecedented speed in response to the
outbreak of the virus and the measures taken to control its spread. Even after the unexpectedly
positive May employment report, nearly 20 million jobs have been lost on net since February, and
the reported unemployment rate has risen about 10 percentage points, to 13.3 percent. The
decline in real gross domestic product (GDP) this quarter is likely to be the most severe on
record. The burden of the downturn has not fallen equally on all Americans. Instead, those least
able to withstand the downturn have been affected most. As discussed in the June Monetary
Policy Report, low-income households have experienced, by far, the sharpest drop in
employment, while job losses of African Americans, Hispanics, and women have been greater
than that of other groups. If not contained and reversed, the downturn could further widen gaps in
economic well-being that the long expansion had made some progress in closing.
Recently, some indicators have pointed to a stabilization, and in some areas a modest rebound,
in economic activity. With an easing of restrictions on mobility and commerce and the extension
of federal loans and grants, some businesses are opening up, while stimulus checks and
unemployment benefits are supporting household incomes and spending. As a result,
employment moved higher in May. That said, the levels of output and employment remain far
below their pre-pandemic levels, and significant uncertainty remains about the timing and
strength of the recovery. Much of that economic uncertainty comes from uncertainty about the
path of the disease and the effects of measures to contain it. Until the public is confident that the
disease is contained, a full recovery is unlikely.
Moreover, the longer the downturn lasts, the greater the potential for longer-term damage from
permanent job loss and business closures. Long periods of unemployment can erode workers'
skills and hurt their future job prospects. Persistent unemployment can also negate the gains
made by many disadvantaged Americans during the long expansion and described to us at our
Fed Listens events. The pandemic is presenting acute risks to small businesses, as discussed
in the Monetary Policy Report. If a small or medium-sized business becomes insolvent because
the economy recovers too slowly, we lose more than just that business. These businesses are
the heart of our economy and often embody the work of generations.
With weak demand and large price declines for some goods and services-such as apparel,
gasoline, air travel, and hotels-consumer price inflation has dropped noticeably in recent
months. But indicators of longer-term inflation expectations have been fairly steady. As output
stabilizes and the recovery moves ahead, inflation should stabilize and then gradually move back
up over time closer to our symmetric 2 percent objective. Inflation is nonetheless likely to remain
below our objective for some time.
Monetary Policy and Federal Reserve Actions to Support the Flow of Credit
The Federal Reserve's response to this extraordinary period is guided by our mandate to
promote maximum employment and stable prices for the American people, along with our
responsibilities to promote the stability of the financial system. We are committed to using our full
range of tools to support the economy in this challenging time.
In March, we quickly lowered our policy interest rate to near zero, reflecting the effects of
COVID19 on economic activity, employment, and inflation, and the heightened risks to the outlook. We
expect to maintain interest rates at this level until we are confident that the economy has
weathered recent events and is on track to achieve our maximum-employment and price-stability
goals.
We have also been taking broad and forceful actions to support the flow of credit in the economy.
Since March, we have been purchasing sizable quantities of Treasury securities and agency
mortgage-backed securities in order to support the smooth functioning of these markets, which
are vital to the flow of credit in the economy. As described in the June Monetary Policy Report,
these purchases have helped restore orderly market conditions and have fostered more
accommodative financial conditions. As market functioning has improved since the strains
experienced in March, we have gradually reduced the pace of these purchases. To sustain
smooth market functioning and thereby foster the effective transmission of monetary policy to
broader financial conditions, we will increase our holdings of Treasury securities and agency
mortgage-backed securities over coming months at least at the current pace. We will closely
monitor developments and are prepared to adjust our plans as appropriate to support our goals.
To provide stability to the financial system and support the flow of credit to households,
businesses, and state and local governments, the Federal Reserve, with the approval of the
Secretary of the Treasury, established 11 credit and liquidity facilities under section 13(3) of the
Federal Reserve Act. The June Monetary Policy Report provides details on these facilities, which
fall into two categories: stabilizing short-term funding markets and providing more-direct support
for credit across the economy.
To help stabilize short-term funding markets, the Federal Reserve set up the Commercial Paper
Funding Facility and the Money Market Liquidity Facility to stem rapid outflows from prime money
market funds. The Fed also established the Primary Dealer Credit Facility, which provides loans
against good collateral to primary dealers that are critical intermediaries in short-term funding
markets.
To more directly support the flow of credit to households, businesses, and state and local
governments, the Federal Reserve established a number of facilities. To support the small
business sector, we established the Paycheck Protection Program Liquidity Facility to bolster the
effectiveness of the Coronavirus Aid, Relief, and Economic Security Act's (CARES Act)
Paycheck Protection Program. Our Main Street Lending Program, which we are in the process
of launching, supports lending to both small and midsized businesses. The Term Asset-Backed
Securities Loan Facility supports lending to both businesses and consumers. To support the
employment and spending of investment-grade businesses, we established two corporate credit
facilities. And to help U.S. state and local governments manage cash flow pressures and serve
their communities, we set up the Municipal Liquidity Facility.
The tools that the Federal Reserve is using under its 13(3) authority are appropriately reserved
for times of emergency. When this crisis is behind us, we will put them away. The June
Monetary Policy Report reviews the implications of these tools for the Federal Reserve's
balance sheet.
Many of these facilities have been supported by funding from the CARES Act. We will be
disclosing, on a monthly basis, names and details of participants in each such facility; amounts
borrowed and interest rate charged; and overall costs, revenues, and fees for each facility. We
embrace our responsibility to the American people to be as transparent as possible, and we
appreciate that the need for transparency is heightened when we are called upon to use our
emergency powers.
We recognize that our actions are only part of a broader public-sector response. Congress's
passage of the CARES Act was critical in enabling the Federal Reserve and the Treasury
Department to establish many of the lending programs. The CARES Act and other legislation
provide direct help to people, businesses, and communities. This direct support can make a
critical difference not just in helping families and businesses in a time of need, but also in limiting
long-lasting damage to our economy.
I want to end by acknowledging the tragic events that have again put a spotlight on the pain of
racial injustice in this country. The Federal Reserve serves the entire nation. We operate in, and
are part of, many of the communities across the country where Americans are grappling with
and expressing themselves on issues of racial equality. I speak for my colleagues throughout the
Federal Reserve System when I say, there is no place at the Federal Reserve for racism and
there should be no place for it in our society. Everyone deserves the opportunity to participate
fully in our society and in our economy.
We understand that the work of the Federal Reserve touches communities, families, and
businesses across the country. Everything we do is in service to our public mission. We are
committed to using our full range of tools to support the economy and to help assure that the
recovery from this difficult period will be as robust as possible.
Thank you. I am happy to take your questions.