Fed’s Powell: Congress, President Must Step Up Fiscal Aid

Vito J. Racanelli

Federal Reserve policymakers were out on the hustings last week, and they continued to emphasize more aid may be needed on the fiscal front, especially in terms of credit to small firms and people most affected.

Thursday, at an online Brookings Institution forum, Fed Chairman Jerome Powell said, “We will continue to use these powers forcefully, proactively, and aggressively until we are confident that we are solidly on the road to recovery.” Additionally, he repeated his call on Congress and the Administration to take additional measures to keep economic activity from seizing further.

“…These are lending powers, not spending powers.” Though borrowers will benefit, “there will also be entities of various kinds that need direct fiscal support” instead. The job of giving financial support “directly to those most affected falls to elected officials, who …should direct our collective resources,” Mr. Powell said.

Adding to the chorus, Fed Chicago President Charles Evans said in a speech that although the country entered the crisis with “solid economic fundamentals … the economic downturn will be deep,” adding the longer the crisis goes on, the greater the risks to the outlook. “We are all using valuable resources and savings that we had intended to use for other aspirations.” To ensure that the trouble is not longer lasting, “it seems likely that additional resources will be required to navigate through the next several months and beyond.”

In an interview with The Wall Street Journal, Dallas Fed president Robert Kaplan said that by and large, most of the major credit markets are functioning reasonably well. Commercial paper market, municipal markets, and investment-grade debt markets have improved, although the spreads there are wider than they were. Asset-backed security markets have improved.

In general, investors and analysts believe that these huge interventions have contributed mightily to a drop in market stress across a number of fixed-income, credit, mortgage and equity markets. Of course, the skeptic in me wonders, since we don’t have a control, if any of this stabilizing might have happened anyway, at a far lower cost.

Separately, the Fed temporarily lifted restrictions on Wells Fargo, allowing the troubled bank to make more loans to small businesses during the coronavirus crisis. The bank’s lending capacity has been limited by a $1.95 trillion cap on assets imposed by the Fed in 2018. The bank will now be able to exceed that overall limit via loans it makes through two of the government’s small-business lending programs, the central bank said Wednesday. The cap will remain in place for all other types of lending.

The minutes of its most recent meetings said it is thinking about new “forward guidance” and the possibility of new “balance sheet measures,” but no details were given.

The yield on the benchmark 10-year U.S. Treasury note was 0.72% vs 0.61% one week previous.

Upcoming FOMC meeting on April 28-29.

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Vito J. Racanelli
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