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

Question (Steve Liesman, CNBC): Thank you. Mr. Chairman, how effective do you expect this—these actions to be? Do you—do you think a recession is inevitable and/or can be avoided? Secondly, there was talk about additional programs that could come out—for example, a Primary Dealer Credit Facility or a Term Auction Facility. Do you expect those to be announced soon? Thank you.
Answer: Thank you. So, based on our discussions today and many conversations with participants, it’s fair to say that we have a range of views about the path of the economy, as is always the case with the Fed. But, in general, I’d say that we see the U.S. economy as having been in quite a strong position before the arrival of the virus. We see that it is likely that the measures we take to protect ourselves from the virus will involve withdrawing from or reducing certain activities—thinking there of travel, leisure, hospitality, those things— and that’s going to mean lower economic activity for a period of time. These are choices that we make to protect ourselves—appropriate choices that we make to protect ourselves from the virus. So that means that the second quarter is probably going to be weak—in fact, in the view of many, output declining—output lower in the second quarter than it was in the first quarter. After that, it’s very hard to say how big the effects will be or how long they will last. And that’s going to depend, of course, on how widely the virus spreads, which is something that is highly uncertain, and I would say, in fact, unknowable. We do know that the virus will run its course and that the U.S. economy will resume a normal level of activity. In the meantime, the Fed will continue to use our tools to support the flow of credit to households and businesses and support demand with monetary policy— ultimately, to do what we can to see that the recovery is as vigorous as possible. You also asked about other facilities. I would point out that we have, of course, responded very strongly not just with interest rates, but also with liquidity measures today. And we believe that what we did today will be beneficial to financial markets generally. And as I said in my statement, we’re prepared to use our full range of tools to support the flow of credit to households and businesses. Thanks.

Question (Nick Timiraos, Wall Street Journal): Thanks, Chair Powell. Nick Timiraos of the Wall Street Journal. I guess I wanted to understand, specifically, how the actions you’ve announced this evening will get credit to households and firms that are going to see large drops in income and revenue. And also, to the extent that they are needed, what steps would you recommend the fiscal authorities undertake—again, to make sure that firms with large drops in income and revenue don’t go bust over the next few weeks or months?
Answer: So let me tell you how, I think—what our tools can accomplish, and—and really what they’re not designed to accomplish. So what our liquidity operations—and I’ll talk specifically about the Treasury and MBS purchases—are designed to do is to assure the proper functioning of the Treasury and MBS markets. The Treasury market is one of the most important, perhaps the most important, market in the world. It’s probably the most liquid large market in the world. The MBS market is very important: It’s closely linked to the Treasury market, and it’s the way that our monetary policy decisions flow through to borrowers in the real economy. So, two very important markets. And they had reached levels of very high illiquidity, and—to the point where we—as you know, last week we offered financing—very large amounts of financing. And after that, we bought assets across the curve to try to support liquidity and return to normal function. And we found that that helped, but, nonetheless, we thought we had to do more. And we knew what we had to do, which was the asset purchase programs that we did today. And those are designed to restore those key markets to normal function. Now, why is that important to—to everyone? These markets are part of the foundation of the global financial system and of the United States financial system. And if they are not functioning well, then other markets—then that will spread to other markets. And those are the markets that—that amount to—that—where households and businesses typically get credit. So we know that dysfunctional financial markets—a dysfunctional financial system, really, can have very big negative effects on the economy. We saw that during the financial crisis. This is a very different situation, but, nonetheless, we thought it was quite important for us to take strong measures to support—to support proper market function in these important markets. Now, you asked about households. It’s true, we don’t have the tools to reach individuals and particularly small businesses and other businesses and people who may be out of work or whose businesses may not—may experience a period of very low activity. We don’t have those tools. We have the tools that we have, and we use them. I think we’ve used them quite aggressively for the benefit of the public. But this is a multifaceted problem, and it requires answers from different parts of the government and society. I mean, I think that, by far, the most important is the response of the health-care workers and health-care policymakers. After that, fiscal policy. We’ve had one round of fiscal policy, another coming. I think fiscal policy is a way to direct relief, really, to particular populations and groups. Monetary policy has a role, and it really is in, you know—our original role was providing liquidity to financial systems when they’re under stress, and that’s—that’s really part of what we did today. The other role is to support demand through lower interest rates, and we did that. You—you asked about fiscal as well, and I guess I’ve sort of covered that. We do think fiscal response is—is critical, and we’re happy to see that those measures are being considered, and we—we hope they are effective.

Question (Brendan Greeley, Financial Times): Thank you, Chair Powell. This is Brendan Greeley with the Financial Times. You have talked about the mortgage-backed security purchases and the Treasury purchases as a stability—a stability operation. I’m pretty sure that every person on this call has an editor asking to determine whether or not this is quantitative easing. How do we draw a distinction between these asset purchases and something you may do in the future that is explicit quantitative easing? Or can we think of this as the first step in quantitative easing?
Answer: So what—what I can tell you definitively is what the purpose of the asset purchases was, and I mentioned this in my statement. And it really is to support the availability of credit in the economy—households and businesses—and thereby support the overall economy. How do they do that? They do that by supporting proper market functioning in the Treasury market and the MBS market. So you see—and I think you’ll see—as these purchases roll forward, you will see the Treasury market and the MBS market returning to normal market function, and that will actually support economic activity. That will be a positive for economic activity. In terms of what it’s labeled, that’s of less interest to me. I really think we are very clear in our minds what we’re doing this for and what the logical effects would be, which would be— which would be both better market function and—and—you know, when there’s better market function, it will be—you know, policy will be supporting the economy better.

Question (Christopher Rugaber, Associated Press): Hi, it’s Chris Rugaber at AP. In 2008, you had a lot of coordination between the White House at that time, the Fed, the Treasury—Bernanke doing a lot of things with Paulson and so forth. You know, today the White House had its press conference at 5:00. You guys are doing something a little separate. Is there—do you think it would be more helpful to markets—perhaps, in the broader economy, to have a more coordinated response? Is that something we might look for in the future?
Answer: Well, I would say this. You know, we have different tools. I think we do, actually, work pretty closely with the Treasury Department and—and cooperate with them on things, with clear lines of delineation. For example, the Treasury Department has authority over fiscal policy. That’s not our job. It’s their job, with other parts of the Administration. It’s just that—like that for us with monetary policy. We have sole responsibility for monetary policy and strong instructions from Congress to conduct it in an independent, nonpolitical way. So those two things are—one for each of us. But in the middle there, there are areas where we—where we can cooperate. And also, there’s a long history. You would want the finance ministry and the treasury [and the central bank] to be talking in every major economy in the world. You would want them to be regularly exchanging information—professional relationships not just at the, you know, the Chair-to- Treasury-Secretary level, but also through the organization. For example, the New York Fed is the Treasury’s agent—fiscal agent, as you know, so there’s a lot that goes into debt management and the issuance of debt, which happens at the New York Fed. So I think we do, actually—we have professional, good working relationships up and down the chain there, and, you know, that—that seems to me to be working. And there is—there’s also quite a lot of coordination in other respects with—of course, with foreign central banks, but you didn’t ask about that.

Question (Heather Long, Washington Post): Hey, sorry, I’m here. I think—hi, Chair Powell. Two questions this evening. First, have you personally been tested for coronavirus, and are you working from home? If you could shed some light on the precautions you’re taking. And, second, do you believe the Fed has sufficient tools at the moment, or are you seeking congressional action to expand your tool set?
Answer: So I feel fine. I feel very well, and so there’s no reason for me to be tested. We are observing—we’re trying to model good behavior here, so we’re observing quite a lot of teleworking. And also, we’re—you know, we’re not having a lot of big, crowded meetings—we’re not having any big, crowded meetings. So we’re trying to observe all of the things that the professionals tell us to do. I do expect to do some teleworking because I want to model that—that it’s okay for the people to do so. In fact, it’s important for them to do so. So I will do that. In terms of our—of our toolkit, let me say first that, you know, I think we do have plenty of space to adjust our policy. I mentioned our liquidity tools—you know, we have a lot of power in our liquidity tools, and, as I mentioned, we’re prepared to use them. In addition, we’ve got plenty of space left to offer forward guidance, asset purchases, and adjust those policies, so I think we do have room. We—we have not at all made a decision to request further—further tools or authorities from Congress, no. We—we have not made that decision. It is not something we’re actively considering right now.

Question (Jeanna Smialek, New York Times): Hi, Chair Powell. This is Jeanna Smialek from the New York Times. Thanks for taking our questions. I’m just curious—you know, obviously, you held this meeting in lieu of your meeting later this week. Will you still release a Summary of Economic Projections? And if not, how should we understand how you guys are thinking about the economy as the coronavirus shapes up?
Answer: So why no—I guess you’re asking, why no SEP, and what’s our forecast? So a couple reasons we didn’t do an SEP. First, we decided on Thursday to move the meeting up by three days to today, and that’s before the SEPs are generally filed. They hadn’t been filled out, and we—frankly, we spent our time focused on getting ready to make these announcements. Second, and, you know, a number of FOMC participants had already reached out to make the point that the economic outlook is evolving on a daily basis, and it really is depending heavily on the spread of the virus and the measures taken to affect it and how long that goes on. And that is just not something that’s knowable. So, actually, writing down a forecast in that circumstance didn’t seem to be useful, and, in fact, it could have been more of an obstacle to clear communication than a help. I do expect that we’ll return to the quarterly— regular quarterly cycle in June, however. In terms of the forecast, so, as I mentioned, you know, we see the U.S. economy starting out strong—from a strong position, different—different as we—as we talked through it today. People have a range of perspectives on the way the year is going to go, but I think there’s a pretty broad sense that the second quarter will be a weak quarter, with probably out—you know, output declining a bit. After that, it becomes hard to say, you know, what’ll happen in the third and fourth quarters and thereafter, and it’s going to depend, again, on—on the path of the virus. So the thing we do know is that we’ll be here doing our job and supporting the flow of credit and there to do what we can when the recovery comes to make it as vigorous as possible.

Question (Craig Torres, Bloomberg): Hi, Chair Powell. Craig Torres at Bloomberg News. You say the path of the economy more or less depends on the path of the virus. How important is fiscal policy now in determining whether this sudden stop in activity is long or short and of high human consequence or little human consequence? And, second, can you talk a little bit about what’s on your dashboard for economic and financial indicators that you’re going to be watching day to day? I know Vice Chair Clarida said that we should start seeing the data show up in April. What are you going to be watching, and what should we be watching?
Answer: So, in terms of fiscal policy, I think in the first instance—and you’re—you’re seeing some of this now—is the thing that fiscal policy and, really, only fiscal policy can do is reach out directly to affected industries, affected workers, and we’ve seen some of that. So, that’s—that’s an important job for fiscal policy. More broadly, after that, there’s the question of—of fiscal—broader fiscal stimulus, and I think that’ll depend on the path of the economy. I—I think there is such a wide range of possibilities here that it’s some—it’s very hard to predict. But there could certainly be—there could certainly be, you know, a need for that. And your second question was—what was your second question?

Question (Victoria Guida, Politico): Hi, Victoria Guida with Politico. Thanks for doing the call. I just wanted to ask, do you see a bigger role here for the Financial Stability Oversight Council? With all the stress that’s showing up in different markets, do you see risks to financial stability rising? Do you think there are some activities that FSOC might want to crack down on? And are you confident that there aren’t any nonbanks that are systemically important?
Answer: FSOC is really something that the Treasury Secretary chairs. And it’s a big group—it’s got a lot of people. I think it serves a good purpose. But, you know, you should know that we are, of course, in regular contact with the other regulatory agencies, constantly talking about what’s going on in markets. There’s a lot of information and conversation on an ongoing basis there, I would say. So—and the same is true with our central bank contacts around the world. We’re in ongoing contact with all the major central banks around the world, talking about what’s going on. We’re having group calls, we’re calling one- on-one, so there’s quite a lot of information being exchanged there. And then, your question was, nonbank SIFIs. You know, again, that’s a judgment for the—that’s a judgment for the FSOC. I—you know, I’m comfortable with the actions that we’ve taken, and if—if we do identify, you know, a systemically important nonbank institution, then we wouldn’t hesitate to designate it, but—although I guess now we’re working more on activities, but we do still have the power to designate institutions, so—

Question (Victoria Guida, Politico): Are risks to financial stability rising, given all the stress that’s happening in financial markets?
Answer: Well, yes. I would say, you know, that’s—that’s something that happens when markets are as volatile as they are, when you’re having these big market movements while markets are trying to understand what’s going on. They’re trying to reach a view on—in high uncertainty, and that’s why you see lots and lots of volatility. I think there’s more risk to financial stability in an era like—like that than there is when things are really placid, and, you know, we’re going home at 4 o’clock and kind of bored over here. That’s not the case right now. So, financial stability—I would say those—those risks do rise at a time of high volatility, particularly a time where we’re presenting—presented with a challenge that is—is kind of unique, really—it’s not something we’ve all done before. I also want to add, though, that, you know, we’re strongly focused on financial stability. We monitor it carefully. We’ve built a very resilient financial system. The banks are highly capitalized, lots of liquidity, much better at understanding and managing their risks, their resilience to stress. So our financial stability focus—our focus on an event like this over the last 10 years will pay dividends, in the sense that you have a much more resilient financial system than you’ve had before.

Question (Jean Yung, MNI): Hi, this is Jean Yung. I wanted to ask, a few days ago the Open Market Desk expanded its term repo operations, but the take-up was a bit low. Is that—did you have any takeaway from that? Did that indicate to you that the repos were not working as you had envisioned it, or was there something else that you learned from that? Thank you.
Answer: Thank you. Yes, so we saw, and everyone saw, that liquidity had become very strained in Treasury and MBS markets, and we decided to offer very large quantities of term and overnight repo to address that. That makes it easier to finance the purchase of repos—sorry, of Treasuries and MBS. So we did that, and as you pointed out, the take-up was not as high as many had expected, and I did—we did learn something from that. We thought that was worth doing, and what we learned was that we needed to go direct here rather than trying to intermediate through the dealers. And so we realized at that point that we would need to actually purchase securities for our portfolio, so we did that on Friday. We bought—the next day, Friday, we went in and we bought across the curve, and we bought, I think, $37 billion worth of securities, and then we saw what happened with that. We saw that market function improved a little bit, but still it wasn’t what we needed. And that’s why we brought together the full FOMC and had our meeting this afternoon and announced these measures this evening, which are strong measures, with the broad support of the Committee to provide really substantial amounts of liquidity. And I—I think you can see us working through different solutions and—and finding the one that we think really will work and then acting quite vigorously, quite aggressively tonight to implement it.