Federal Reserve press conference, 2020-06-10 — Chair Jerome Powell

Question (James Politi, Financial Times): Thanks very much, Chair Powell. There have been plenty of comparisons with the Great Depression of the 1930s since the crisis began. I mean, is that scenario sort of got[ten] more dire as data comes out and we’re looking at a more traditional and sudden recession? And are you at all concerned that the performance—the strong performance in the stock market in the last few weeks is disconnected from economic reality?
Answer: I don’t think that the—that the Great Depression is a good example or a likely outcome or a model for what’s happening here at all. I really don’t. And there—there are just so many fundamental differences. First, the government response has been so fast and so forceful. The origin was quite different. This was a very—an economy that was in a healthy place. Of course, every economy has longer-run challenges, not—and that—that includes our economy, notwithstanding that 50-year low in unemployment and the longest expansion in our history and every reason to think it could continue. So that’s different from what was happening around the time of the Great—the Depression started. The financial system this time was in— was in—was in very good shape, much better capitalized. So, you know, it’s just not the right model. I would say, we’re learning. You know, every month that passes, we’re seeing more, we’re learning more. And I think particularly the next few months will be very important in learning what the—what the real story will be, because we’ll see the—the significant incoming data about the opening of the economy—the reopening of the economy. You know—and I would say, assuming that the—that the—that the disease remains or becomes pretty much under control, I think that what you see is a—is a very weak second quarter, historically weak, and then an—an expansion that builds momentum over time. People will adjust, probably a little bit gradually, to some of the activities that would— that involve getting together in small—in large groups in close quarters. Those will be the harder parts of the economy to recover. But, ultimately, we do see a full recovery over time. And that’s really what, you know, what I think I’m—I’m personally seeing. And you could see significant job growth in—in coming months as people return to their jobs, but you’re still going to face probably an extended period where it will be difficult for many people to find work. And for—and that’s what you see in—in—in, really, many, many forecasts at this point. That doesn’t mean it’s right, but that’s sort of a—a broad expectation, certainly not the Depression forecast.

Question (Heather Long, Washington Post): Hi. Good afternoon, Chair Powell. I’m struggling with two things that I hope you can provide some clarity on. The first is the ongoing bond buying program. You say that it’s needed to continue the smooth functioning of markets, but I guess most of us aren’t really seeing a lot of instability in markets right now. So if you could kind of give us some clarity of what you’re seeing that needs to continue to be smooth at that level and that pace. Second is, you know, you were just talking about Fed concerns about small and medium-sized companies going out of business during this. And, I guess, you know, the Main Street Lending Program still isn’t running yet. When do you expect loans to start happening? And do you think the two-month delay has—has hurt the chances of some companies surviving?
Answer: There have been gains in market function, although not fully back to where you would say they were, for example, in—in February, before the pandemic arrived. We don’t take those gains for granted, though. This is a—this is a highly fluid situation, and we’re— we’re not taking those for granted. And, in addition, as I pointed out in my—in my statement, those purchases are clearly also supporting highly accommodative—or accommodative financial conditions, and that’s—that’s a good thing, so that’s why we’re doing that. Turning quickly to Main Street, so I would say that the thing—what we’ve done on Main Street, I think to a greater degree, is, we’ve listened to feedback. So we’ve been out repeatedly for feedback in trying to create a—a much more difficult product than, really, the other facilities. And I think this—this last set of changes we made have actually been very positive for the facility. I think it’s going to be better able to achieve its goals, and, you know, so we’ve used the time well, I think. And that—we are now in the—in the—in the final run-up to starting the facility. What we did, as you saw earlier—I guess it’s early this week or late, whenever we did it in the last few days—was we lowered the minimum loan size and we increased the maximum loan size. But, I think, even more importantly, we lengthened the maturity and we stretched out the repayment schedule significantly. So borrowers will get a—a two-year delay until they have to make any principal payments—repayments and a one-year delay on interest. So we had been hearing from both borrowers and lenders that these would be very helpful. We made the changes. We’re putting them through the facility. The next step will be to register lenders. At that time, loans can begin to be made. Shortly after that, the facility itself will be up, and those facilities can be—those loans can be sold—95 percent of the loans. And it’s 95 percent across the board now in the Main Street facility can be sold. So all of that should happen quickly now. And I do think this has—this has been a challenging project, but I think we’ve come to a—to a better place. And, by the way, we’re—we’re going to be prepared to adapt further, if we need to. And—and that’s true of all of our facilities. These are unique. There’s no—there’s no playbook here. You—you have to draw this up and then try it out. And we’ve—we’ve been, you know, very willing to adapt and will continue to be.

Question (David Gura, NBC): Thank you, Chair Powell. I’m going to pick up on what Scott Horsley was asking just a moment ago. You have been studious about threading this needle in the interviews that you’ve given and speeches and the—the colloquy that’s followed, not giving advice to Congress but indicating that there’s likely to be a need for more fiscal stimulus or additional policy in the future. So I’m going to try a hypothetical here, and you can rebuff it if— if you want. But if you were to find yourself in a—in a senator’s office suite, and he held up that May unemployment report, which you’ve described as unexpectedly positive and—and a welcome surprise, and if he or she said to you, “Look, this is an indication that we can put on the breaks,” I wonder what you would say. Your—your message throughout this crisis has been one of how unprecedented it is, about how much urgency there is in dealing with this. Indeed, we’ve seen that from the Federal Reserve. I wonder if you worry that that sense of urgency isn’t being matched and—and what the consequences of that might be, if there’s a fear that the Fed could be seen as a Cassandra here as we look at that unemployment report and then through the summer, and you have more and more politicians inclined just to wait and see what happens here in—in subsequent reports. And a quick second question, if I could. You’ve talked a lot about your fear of a second wave of this disease, and it strikes me, there’s a—a difficulty here with definition. You’ve talked about us weathering this crisis and getting through this storm. It seems to me, as I listen to the chatter coming from the White House and from politicians and epidemiologists, there isn’t agreement on what “getting through this” means. And you have an Administration now inclined to, if not direct, be content with states opening up their economies perhaps too early. How problematic is that from a policy perspective, not having agreement on what it means to have defeated this virus or gotten to a place where the economy can get through this?
Answer: I can’t offer any advice, but I will provide a little context for the— for—I want to be clear about the picture—one way to look at the picture, really, and that is this: You can—you can get at this by looking at, you know, the—the—the widest measure of unemployment, of labor market slack, if you will, is the U-6 measure. And the U—that’s the— the one we look—talk about all the time is called U-3, by economists. And the—the one that has a much broader measurement of slack in the economy is U-6. So in—in—in U-6, the U-6 level of unemployment has tripled from 7 percent to 21 percent. That—that amounts to 22 million additional people who are—who’ve—who’ve lost work in the economy either by going to part time or something like that. So that’s in the low 20s, and that’s post the May employment report. You can get at it a different way. You can look at—at just the regular unemployment rate. You can take the 21 [million]—people who have—had—are listed as unemployed right now. You can add more on for the ones who were miscoded. You can also take those people who are suddenly out of the labor force. You put those together, and that has gone up by about 24 million. So those are two different measures of what’s happened. So the question is, 20, 22, 24 million people—got to get them back to work. Somehow, we’ve got to all, as a country, get those people back to work. They didn’t do anything wrong; this was a natural disaster, and I—I really—I do think the responses so far have been great. So that’s the way I would think about it. And if—if you think we—I would just, in terms of the May employment report, it’s—it’s so nice to see. I mean, I think what people were thinking was that you’d start to get those back- to-work kind of numbers in June and July and August. Very few people saw them in May. I mean, almost no one saw that happening as early as mid-May, but it did. And so, you know, and we—we don’t know fully what that means, whether it’s just a timing change or whether it will prove to be much more than that. We’ll—we’re going to have to wait and see. It is a—as I mentioned earlier, it is clear evidence of just how uncertain things are, and—and how humble we have to be about our ability to—to really have confident predictions as opposed to just predictions. So, bottom line, I would just say, that—that—the key thing people need to understand is that there’s just a lot of work to do in the labor market. We’re going to stick with this and support that until the work is done. That you—you can—that is something we’re going to do with all of our tools, and I think it may require Congress to help as well. It may, but that’s going to be their decision. On—you also asked about the second wave. So we—you know, we have major responsibilities and powerful tools, but the decision about when to reopen the economy is one for elected officials at the state and local and federal level. And, you know, if they ask, we—we don’t have any particular expertise here at the Fed in pandemics or coronaviruses or anything like that. We talk to experts, but—you know, so we don’t have anything special to add on that. I would just say, it’s—you know, it’s kind of self evident, I think, that if a—if it happens, you know, the—the issue would be, first of all, people’s health, but secondly, you could see a public loss of confidence in—in parts of the economy that will be already slow to recover. So it could hurt the recovery even if you don’t have a national-level pandemic, just a—just a series of—of local ones, of local spikes could—could have the effect of undermining people’s confidence in traveling, in restaurants and entertainment, anything that involves getting people together in small groups and feeding them or flying them around—those things could be hurt. So it would not be a positive development, and I’ll just leave it at that.

Question (Jonnelle Marte, Reuters): Thank you, Chair. So I have two quick questions. One is if we have hit bottom for the economy, and the second question is regarding the—the way that the pandemic has exacerbated racial inequality. I wanted to ask, to what extent do you think you can factor in both disparities when you’re thinking about maximum employment?
Answer: I would say that many forecasters had been expecting a bottom for the economy in—around the middle of the year, with—with a huge range of uncertainty. I think the labor market—the evidence of one jobs report is that the labor market may have hit bottom in May. We don’t know that; we’re going to see. And, you know, many forecasters widely expect a—a recovery over the second half of the year. So it—it is possible, but the thing is, we’re not going to overreact to a single data point. We’re going to be very careful about reaching any conclusions about—about good data or bad data. So, I think, you know, we’re going to be here with our tools supporting this economy for as long as it’s needed. So—but I think there’s a possibility that—that the bottom has come in the labor market, but we don’t know that yet. We’ll—we’ll know more as we go forward. So, in terms of the—you know, the effect of the pandemic on inequality, what you see— the pandemic, of course, hits everybody, but in an economic sense, it hits those industries that are—that involve groups of people in tight groups, either in places where they’re—it’s the travel, leisure, restaurant, bars, those kinds of service-economy jobs. And so a lot of the lost jobs were from people who work in the service economy, dealing with the public, for example, and relatively—compared to other jobs, relatively low wages. So, and if—if you just look at what that is, unemployment has gone up more for Hispanics, more for African Americans. And women have borne—borne an extraordinary—a notable share of the burden beyond their percentage in the workforce. So that’s really—really, really unfortunate, because if you just go back two months, where we were was, we had, effectively, the first tight labor market in a quarter-century. And for the last couple of years before the pandemic hit, you were seeing wages go up the most for people at the lower end of the wage spectrum, and that was great. And, you know, we were meeting with people from low- and—low- and moderate-income communities all over the country and hearing, “Don’t change this. Do whatever you—do whatever you can. Keep this going. This is the best labor market we’ve seen.” And we had every expect—every expectation, every reason to expect that this would continue, and then this comes. So it’s—it’s heartbreaking, and, you know, we want to get it back, so—we really want to get it back. And so I think we learned a number of things over the course of the last few years. One of them is that, you know, I—you—you can have 3, 3½ percent unemployment for a couple of years, and, really, you see modest moves in wages and relatively almost invisible moves in inflation. So that was not anybody’s understanding of the structure of the economy, I think, or most peoples’, anyway. So we can use our tools to—to support the labor market and support the economy. We can—we can use them until we do fully recover, and that—that’s what we’re planning to do. You know, we don’t target different groups. What—what we are—we are cognizant of the fact, though, that late in the last cycle, late in the last expansion, the benefits really do go more to people at the lower end of the wage spectrum for—for the first time in many years when labor markets are tight, when unemployment is low. And so we would really like to get back to that— get back to that place.

Question (Victoria Guida, Politico): Hi, I’m Victoria Guida with Politico. I just wanted to follow up on a couple of things that are—have already been asked. First of all, on fiscal policy, you all obviously put out your Summary of Economic Projections today, and I’m curious to what extent future fiscal policy is factored in or not factored in to those projections, and—and how, more or less, fiscal policy might affect those projections. And then my other question is on—on Main Street. You’ve mentioned multiple times that, you know, the Fed and Treasury are willing to expand the program further. So my question is, what’s the threshold for those types of changes? Is it just making sure that borrowers that want to borrow through the program are—are—are able to do that?
Answer: In terms of the way—the way we do forecasts is, we—we don’t— the—we don’t tend to incorporate things we’re highly uncertain about. So I think the—the forecast would not have included substantial additional—you know, big additional fiscal support for the economy. Maybe—maybe a modest amount, something that looks like a—a low-end guess on what might come out of the current negotiations. That’s basically what would be in the baseline. So, of course, if there were more fiscal support, you’d see—you’d see better results sooner, but that’s a question for Congress. You know, we’re—we’re spending a lot, and that’s really what they get to decide. In terms of Main Street and our willingness to expand it further, I think we’re—one thing we’re looking at—very strongly looking at is—is nonprofits, and is there a way to—to incorporate them into—into that facility or a similar facility. So that’s another dimension. I— you know, if we had a great idea for changing Main Street, we would’ve done it. And we—and we have done some things that I think are really very positive lately here. But if we—as we learn more, it could be—it could be in terms of size, it could be in terms of lots of different things. But I—I think we have a good product to go to market with now, and I think it’ll get— it’ll get out there soon. And, you know, we’ll see, and—and we’ll be willing to continue to adapt.

Question (Don Lee, Los Angeles Times): Chair Powell, as you know, the vast majority of people who have been laid off are expecting to be recalled by their employers. At this point, what is your expectation of how much of these job losses will be permanent?
Answer: I don’t have a reliable estimate of that. Clearly, not everyone will go back. But—and I—I would say, many will go back, but what’s—what’s going to be the remainder when—you know, when we reach sort of what is the new normal? It’s—it’s so uncertain, but it—it could be a good number of millions of people, I think, in many—in many estimates, but these—I’d say you’re so early in the process. People are—for example, people are going back and looking at other significant changes in the economy, and they’ve seen how many people go back when, for example, there’s a technological change, and things like that—you may have seen some of this research—and you come up with an estimate. I—you know, it’s just going to be very hard to say. I—I, but I—my—my assumption is that there will be a significant chunk—chunk well into the millions. I—I don’t want to give you a number, because it’s going to be a guess, but well, well into the millions of people who—who don’t get to go back to their old job. And, in fact, there isn’t a—there may not be a job in that industry for them for some time. There will eventually be, but it could be some years before we get back to those people finding jobs. I mean, when—when people lose a job, if they can find a job in their own industry, that’s usually the fastest way, is—is they know other people in that industry, different kinds of jobs. That’s usually the fastest. If you have to go to a different industry and start over again, it’s much harder, and that’s where you start to lose people’s—who are—just fall out of the labor force. And—and, you know, it’s very tough on their lives. We all know people who—to whom that happened in the Global Financial Crisis, and, hence, our desire to—to do what we can to support this and—and—and support this recovery with—with the tools that we have.

Question (Nancy Marshall-Genzer, Marketplace): Nancy Marshall-Genzer, Marketplace. Chair Powell, I’m wondering—I want to go back to the issue of inequality, and I’m wondering, what more could the Fed do to reduce economic inequality in this country? I mean, I know that you said you don’t target certain groups, but is there a way that you could use, for example, the black unemployment rate as—as some kind of a benchmark to something you’d want to meet or something that you’d keep track of?
Answer: We do. We do track all unemployment by all kinds, as you know— all kinds of different demographics, including particularly the African American unemployment rate, which reached an all-time low since the data started being kept in the modern era. Of course, it’s still close to twice the white unemployment—it is twice the unemployment rate, or it was back in the—back then. It’s certainly much higher now. You know, the—the best thing we can do with our monetary policy tools is to—is to look at, you know, the evidence of what we saw—that we saw with our own eyes so recently, which is that the economy can have very low unemployment—very low unemployment. It could’ve been lower than we were. It could be lower than 3½ percent without seeing financial imbalances, without seeing inflation going—getting out of control. We, frankly, didn’t even get inflation back up to target—without seeing wages getting out of touch with—with where they should be, so that’s the—that’s the biggest thing we can do. You know, in—in—inequality is something that’s been with us increasingly for more than four decades, and it’s—it’s not really related to monetary policy. It’s, or—or it’s more related to—there are a lot of theories on—on what causes it, but it’s been something that’s more or less been going up consistently for more than four decades. And there are a lot of different theories, one of which is—just is that it—globalization—globalization and technology call for rising levels of skills and aptitudes and education, and that U.S. educational attainment kind of flattened out, certainly relative to our peers—flattened out over that period. And so a lot—so that means if you’re—if you’re on the right side of those trends, then those things are good for you. If you’re not, then your wages are going to stagnate. And wages for the bottom, you know, 10 percent really haven’t gone up in real terms in a very long time, and—over a long period of time, whereas wages for the people at the top, compensation, any way you cut it—before taxes, after taxes, after transfers, all of those, any way you cut it—wages have—compensation has gone up a whole lot for people at the top, and it really hasn’t gone up for people at the bottom. If you look more in the middle, then it’s—then—then it has gone up for most other groups, but at the bottom, not so much in real terms, in inflation-adjusted terms. So, you know, we—we call it out as a—as an important factor in the economy, and we will use our tools to support maximum employment and take that, you know, definition to heart. But, obviously, that’s something that’s going to require an all-of-society, all-of-government response.