Federal Reserve press conference, 2020-03-15 — Chair Jerome Powell

Question (Nancy Marshall-Genzer, Marketplace): Hi, Nancy Marshall-Genzer with Marketplace. Chair Powell, I’m wondering, are you considering negative interest rates at this point? Is there a scenario in which you think that would be appropriate?
Answer: So, as I’ve noted on a number of occasions, really, the Committee— as you know, we did a year-plus-long study of our tools and strategies and communications. And we, really, at the end of that, and also when we started out, we view forward guidance and asset purchases—asset purchases and also different variations and combinations of those tools as the basic elements of our toolkit once the federal funds rate reaches the effective lower bound— so, really, forward guidance, asset purchases, and combinations of those. You know, we looked at negative policy rates during the Global Financial Crisis, we monitored their use in other jurisdictions, we continue to do so, but we do not see negative policy rates as likely to be an appropriate policy response here in the United States.

Question (Edward Lawrence, Fox Business): Thank you, Mr. Chairman. Edward Lawrence from Fox Business Network. In your statement, you say that the market measures of inflation have declined. The Fed has undershot inflation in the last year, and that’s become one of the focuses of the FOMC meetings. Now, does the Federal Reserve see deflation coming, and is this large cut meant to get in front of any more inflation? Plus, as a second question, would the Fed consider buying securities outside of Treasuries and mortgage-backed securities? Thank you.
Answer: Right. So, on—on inflation, you know, the—the economy’s performed so well, really, over the last few years, and right up through January: historically low unemployment—50-year-low unemployment for a couple of years, 11 years—almost 11 years of expansion so far, and yet inflation lingered below 2 percent. So we’ve been concerned that inflation not move down further. It’s not at all a question of deflation. It was a question of not getting inflation up to our target on a robust, symmetric kind of a way. So, with this coronavirus arriving, we judged that the—the net effects of this will be to— to have inflation move down even a little bit more. And it’s—it’s not a question—it’s not—it’s not an issue of deflation. Again, it’s just an issue of inflation probably falling even a bit further. We expect, with uncertainty, that, you know—that it will fall a little bit further, at least, below where it has been. We are—of course, we don’t have the legal authority to buy other securities other than the ones we already buy, and we’re not seeking authority to do so. We haven’t discussed that at the—at the FOMC, and it’s not—it’s not legal authority that we’re seeking.

Question (Craig Torres, Bloomberg): Yes. It was on what indicators you’re going to be looking at, financial and real.
Answer: Well, I think, in the very near term, we’re going to be looking at, you know, the Treasury market function. We’re really going to be looking to see that financial markets are returning to more liquid, more normal functioning. That is an essential part of our job. That is—actually, you know, that is the thing that central banks were originally designed to do, was to provide liquidity to financial systems in stress, so we take that job very seriously. It’s probably the most important thing we’re doing now is that. So we’ll be watching that and we’ll be prepared to use our tools when and as appropriate to address—to—to support market functioning and really to support the flow of credit to households and businesses. Those are the things I’ll be looking at. You know, in terms of economic data, I think it’s just so early. You know, we’re really looking—I mean, the economic data will follow the data on the spread of the virus. You know, I think what happens—what happens during the spread of the virus is probably not going to tell you a lot about where the economy will be in six months. It’s going to be— because you may have a—you probably have a bad quarter in the second quarter, but if things get better in the third quarter, that probably won’t matter so much. We may be able to come back from that. If it lasts longer—so that’s really what I’ll be looking for, is—is what is going to be the spread of the virus and what’s the path it’s going to take and what are the effects on the economy.

Question (David Gura, NBC News): Hi, Chair Powell. This is David Gura from NBC News. And a lot of good questions here, so I’ll—I’ll turn to one that’s more philosophical in nature. And you’ve talked a bit about the—the disruptions from the coronavirus outbreak and having lower economic activity for a period of time. I’m reckoning with fact that my kid’s going to be out of school until April 20 at the earliest, so we’re feeling this very, very acutely. But I wonder if you could just give us your perspective on the time horizon here and put that into some broader context—how you look at this and how anomalous this thing is with which you and your colleagues are going to have to reckon. That’s my first question. The second is, you know, we’ve seen a variety of tools here deployed over these last few weeks, and the market—which I know is something that you pay at least minimal attention to— has reacted negatively to some of that. What do you make of that? Going back to the question that was asked earlier about the toolbox and—and what’s left—what’s left in it, rates are low. Does that provoke any apprehension, any nervousness on your part that there are fewer tools therein?
Answer: So I guess your first question is, how—how do we think about the time—the time for this thing? You know—and the truth is, we just don’t know, and, you know, the experts we talk to will say that they don’t know, and that it’s, in fact, unknowable. It’s going to depend on a number of things. First, it’s the measures that we take to, you know, to—with the social distancing, and the—all the things businesses and school and everyone’s doing now. And that will depend, to some extent, on how compliant people are. You can see that some countries have had a—have been able to, through aggressive measures and really high compliance—have been able to bend the curve and—and do that. And whether we succeed or—you know, that’s really the question. And I wouldn’t—I wouldn’t, you know—I’ll resist the impulse to guess. I really don’t know what that will be. In terms of the toolbox, as I mentioned, we think we have plenty of policy space left, plenty of power left in our tools, and I would point in particular to the liquidity tools. That, I think, is—is right now the most important thing that we’re doing. Our interest rates will matter—cuts will matter now to borrowers who will get some relief from our cuts, but they’ll matter a lot more when the economy begins to recover. So—but in the forefront now are the liquidity tools and—and getting that job done well. In addition, as I mentioned, we—you know, we have room to provide forward guidance, to do more asset purchases. I think there—there is room for us to do what we need to do. I—I would just close, though, by saying that, you know, typically, fiscal policy does play a major role when—when there are downturns. You saw—you’ve seen that in many past downturns, and that’s beyond just the automatic stabilizers. Sometimes fiscal policy comes in on a discretionary basis, and that—that will probably need to be the case here as well.