Federal Reserve press conference, 2020-11-05 — Chair Jerome Powell

Question (David Gura, NBC): [Inaudible] IMF Chief Economist Gita Gopinath wrote—Gita Gopinath wrote a piece this week in which she said, unequivocally, we’re in a global liquidity trap and talked about the limits of monetary policy right now. She said, “Fiscal policy will need to be the main game in town.” And it’s been a busy week. I don’t know if you were able to pick up the pink paper and read that piece, but she does say 97 percent of advanced economies have rates below 1 percent. And I just wonder if you’d agree with her, in principle, that we are in a global liquidity trap, and what the consequences of that would be. We’ve talked a lot about fiscal policy here domestically, and she talks about the need for sort of a global cohesive approach to, to fiscal policy. My second question is, you talk about how you follow the epidemiology. You’re, you’re looking [inaudible]. And I wanted to ask you about how you look at [inaudible] Christine Lagarde laying out what the ECB plans to do. As you lent an ear to what she had to say the dire warnings that she was making this morning as she looks at the situation that Europe’s i,n , what can you and your colleagues learn about the second wave or the third wave that you’ve talked about and, and we’ve all feared when it comes to a, a policy response?
Answer: Okay, thanks. So two questions. First, I, I take the sense of your first question to be, is monetary policy out of power or out of ammo? And the answer to that would be “no,” I don’t think that. I think—I think that we are strongly committed to using these powerful tools that we have to support the economy during this difficult time for as long as needed, and no one should have any doubt about that. And we do not doubt the power of the things that we’ve already done or the things that we may, may do in the future. I do think there’s more that can be done. And I also think, if you look at the stock of assets that we’ve bought, if you look at the facilities and, and the way we’ve been able to keep accommodative financial— financial conditions accommodative, I think we’ve been able to do a lot of things that are providing very strong support for the economy. And we’re going to—we’re going to keep at that. I’ve said—we’ve said from the very beginning, though, that this is particular—that the particular situation we find ourselves in is one where there is a sudden loss of income on, on the part of millions and tens of millions of people. It’s not so much a typical recession where demand weakens, the Fed cuts interest rates, interest rates stimulate demand, and the economy recovers. It’s a sudden shock where tens of millions of people are out of work. And the fiscal response was, was frankly, I think, very good and very robust in the United States. And it’s certainly one of the main reasons why the recovery has been as good as it’s been so far. So I do think fiscal policy is absolutely essential here. You know, stimulating aggregate demand is one thing, but where there’s a part of the economy that kind of will be resistant to that, you also need fiscal policy. And, of course, you need health-care policy too. I didn’t see Madame Lagarde’s comments this morning, but I, I took the sense of that question to be the spread of the disease in Europe, and what do we think about that? Yes. So, as I mentioned in my—in my opening remarks, it’s a concern. We have a widespread spike in cases across the country, more in some regions than others. And even if we don’t have—and I don’t expect that we would—sort of government-imposed restrictions, it does seem likely, though, that people who have maybe begun to engage in activities that they had in flying, staying in a hotel, going to restaurants, going to bars, and, and things like that, that they may pull back in a situation where suddenly the cases are everywhere in your city, your state, your community. So I do think that that’s a risk that we have as we go into the fall now and, and the cases spike. That, that could weigh on economic activity. One would expect that it would. We thought the same thing, in fairness, about the wave we had this summer in the South and the West. And the economy, you know, seemed to move right through that. This one seems to be larger and more widespread. In any case, it’s a risk, is what I would characterize it—I would characterize it as a risk, as I did in my—in my comments.

Question (Michael McKee, Bloomberg): If I could follow up, there is a suggestion that you buy state and municipal securities directly in the same way that you buy mortgage-backed securities, providing, then, cash to municipalities that are cash-strapped at this point.
Answer: Well, we’re doing that with the Municipal Liquidity Facility now, so we’re, we’re buying, you know, with, with our own funds and with the CARES Act funds that, that we’ve gotten through Congress and the Treasury. We’re buying municipal securities of up to three years. So we’re doing that now as part of an emergency facility under section 13(3), you know, which has to meet the emergency requirements of exigent circumstances and which is all clearly laid out in the law. So we’re, we’re actually doing that now. But I, I see—what that is, from our standpoint, is a rare thing that we do under section 13(3) when regular intermediation in the capital markets or in the banking system has broken down. It’s no longer working. So we step in under 13(3), and we provide liquidity. What turns out to happen is, we announce a program, and the market starts working. So we only actually have to do a backstop. The amount of financing that’s happened in the municipal markets this year is much higher than it was the prior year, and, and we didn’t do it. We did—we’ve done a very small number of, of loans. But just the fact that we’re there as a backstop seems to—seems to get the private parties to get back together and, and get the market working again. So that’s what 13(3) is for. We’re not—that shouldn’t be a permanent thing where we’re just another federal financing agency that’s available to direct credit to—you know, to very worthy borrowers. That would be more along the lines of a GSE. That’s not what we do. We’re there to provide emergency liquidity when intermediation has broken down and then to pull back on that when— you know, when—as the markets normalize, we pull back and we put those tools away, as we did after the Global Financial Crisis and as we will here when the time comes.