Fed’s Powell: Response To Crisis So Far May Not Be “Final Chapter”

13 May 2020

By David Barwick – FRANKFURT (EconoStream) – The economic response seen to the fallout from the pandemic so far may not be the end, Jerome Powell, Chair of the Federal Reserve said Wednesday.

In a speech delivered via webcast at the Peterson Institute for International Economics, Powell said that high uncertainty meant the need for policymakers to be ready for different outcomes, according to a text provided by the Fed.

The cutting of the federal funds rate to near zero and the various measures to keep the economy financed are the kind of actions taken “only in extraordinary circumstances, like those we face today,” he said, adding that “[w]hen this crisis is behind us, we will put these emergency tools away.”

He continued: “While the economic response has been both timely and appropriately large, it may not be the final chapter, given that the path ahead is both highly uncertain and subject to significant downside risks.”

The many unanswered questions about the virus imply that “policies will need to be ready to address a range of possible outcomes,” he said.

As to the many potential longer-term consequences of the pandemic’s impact, “[w]e ought to do what we can to avoid these outcomes, and that may require additional policy measures,” he said. “At the Fed, we will continue to use our tools to their fullest until the crisis has passed and the economic recovery is well under way.”

The recovery may need time to become sustainable, time that “can turn liquidity problems into solvency problems,” he remarked. “Additional fiscal support could be costly, but worth it if it helps avoid long-term economic damage and leaves us with a stronger recovery.”