Fed’s Powell: More Stimulus Needed For Damaged Economy
Fed’s Powell: More Stimulus Needed For Damaged Economy
The market’s conductor spoke, and when it comes to the Federal Reserve, investors drop everything to hear what the chairman says. Speaking at virtual event at the Peterson Institute of International Economics on Wednesday, Jerome Powell again pushed for the Administration and Congress to open the spigots and spend more money in response to the coronavirus-induced economic downturn the U.S. and to help make sure the Fed’s stimulus is effective.
The extent of the damage became even more apparent a day later when the Labor Dept. said that nearly 3 million workers applied for unemployment benefits last week. The total is now more than 36 million.
“There is a growing sense that the recovery may come more slowly than we would like…and that may mean that it’s necessary for us to do more,” the Fed chairman said. He described the outlook “highly uncertain and subject to significant downside risks.”
On the whole, I’d say the Fed message this week was less sanguine that the previous week’s speeches saying the economy might get out of the hole in the second half. “The scope and speed of this downturn are without modern precedent, significantly worse than any recession since World War II,” the Fed head said. He warned of long-lasting damage that could follow.
Yeah, the market doesn’t like comments like that. Unsurprisingly, it was not welcomed by the stock market, which fell 2% last week. See page 1.
Powell also said the Fed isn’t considering plans to cut its benchmark Federal-funds rate—now near zero—to a negative level. That, however, is something the Fed futures market is implying for 2021. And as I’ve pointed out before the futures market has been a better indicator of rate trends than the Fed itself.
Economists surveyed by The Wall Street Journal expect gross domestic product to shrink 6.6% this year, measured from the fourth quarter of 2019. That reflects a deeper slowdown than the 4.9% contraction predicted in last month’s survey.
Separately, I found another piece of news interesting. For the first time ever, the New York Fed said it would start buying bond exchange-traded funds, to quickly channel money into credit markets. The Fed said it would buy exchange-traded funds that track the corporate bond market, to improve liquidity and the functioning of bond markets.
The yield on the benchmark 10-year U.S. Treasury note was 0.64% vs 0.69% one week previous.
Upcoming FOMC meeting on June 9-10.
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