On Sunday, March 15, 2020 FOMC Chairman Jerome Powell gave an unscheduled FOMC Press Conference. (link of audio and related materials) [also, there was a previously unscheduled FOMC Press Conference on March 3; link of video and related materials]
Below are Jerome Powell’s comments I found most notable – although I don’t necessarily agree with them – in the order they appear in the transcript. These comments are excerpted from the “Transcript of Chairman Powell’s Press Conference“ (preliminary)(pdf) of March 15, 2020, with the accompanying “FOMC Statement.”
From Chairman Powell’s opening comments:
CHAIR POWELL. Good evening, everyone. Today, the Federal Reserve took a number of actions to support American families and business and the economy overall and to promote the flow of credit as we weather disruptions caused by the coronavirus. The virus is having a profound effect on people across the United States and around the world. On behalf of my colleagues at the Federal Reserve, our first concern is for those who have been harmed. Families, businesses, schools, organizations, and governments at all levels are taking steps to protect people’s health. These measures, which are essential for containing the outbreak, will nonetheless understandably take a toll on economic activity in the near term. While the primary response to this challenge will come from our health care providers and policy experts, economic policymakers must do what we can to ease hardship caused by the disruptions to the economy and to support a swift return to normal once they have passed.
The Federal Reserve’s role is guided by our mandate from Congress to promote maximum employment and stable prices for the American people, along with our responsibilities to promote the stability of the financial system. Today, we reduced the target range for our policy interest rate by 1 percentage point, bringing it close to zero, and said that we expect to maintain the rate at this level until we’re confident that the economy has weathered recent events and is on track to achieve our maximum employment and price stability goals. In addition, we took other actions to support the flow of credit to households and businesses.
Before describing our actions more fully, I will share how my colleagues and I currently view the economic outlook. The economy came into this challenging period on a strong footing. The unemployment rate was 3.5 percent in February and has been at or near half-century lows for almost two years. Job gains have been running at a solid pace, well above what is needed to provide jobs for new entrants into the labor market. Participation in the labor force by people in their prime working years remained near its highest rate in more than a decade. And wages have been rising, particularly for lower-paying jobs. Overall economic activity has been expanding at a moderate rate, even though weak growth abroad and trade developments have been weighing on some sectors. U.S. banks are strong, have high levels of capital and liquidity, and are well positioned to provide credit to households and businesses.
The market for Treasury securities is a critical part of the foundation of the global financial system. It is generally the most liquid of all markets, and serves as the benchmark by which many other financial assets are valued. It plays an important role in allowing households and firms to earn a safe return and manage their risks. When stresses arise in the Treasury market, they can reverberate through the entire financial system and the economy. To prevent this from happening and to support the smooth functioning of the Treasury market, we announced today that we will purchase at least $500 billion of Treasury securities over coming months. Similar stresses have also emerged in the market for agency mortgage-backed securities, which is closely linked to the Treasury market and critically supports the ability of people to get a mortgage to buy a house or refinance an existing mortgage. To improve the functioning of this market and to ensure the effective transmission of monetary policy to borrowers in the economy, we will also purchase at least $200 billion of agency mortgage-backed securities over coming months and immediately cease the runoff of these securities in our portfolio. While the primary purpose of these securities purchases is to restore smooth market functioning so that credit can continue to flow, the purchases will also foster more accommodative financial conditions.
Jerome Powell’s responses as indicated to the various questions:
STEVE LIESMAN. Thank you. Mr. Chairman, how effective do you expect these actions to be? 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 primary dealer credit facility, or term option facility. Do you expect those to be announced? Thank you.
CHAIR POWELL. 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.
MICHELLE SMITH. Okay, thanks. We’ll go to Marketplace Radio.
NANCY MARSHALL-GENZER. Hi, Nancy Marshall-Genzer with Marketplace. Chair Powell, I’m wondering are you considering negative interest rates at this point? Is there a scenario in which you think that would be appropriate? CHAIR POWELL. So, as I’ve noted on a number of occasions, really, the Committee as you know, we did a year plus long study of our tools, and strategies, and communications. And we really at the end of that, and also when we started out, we view forward guidance and asset purchases, and also different variations and combinations of those tools as the basic elements of our toolkit once the federal funds rate reaches the effective lower bounds. So, really forward guidance, asset purchases, and combinations of those. You know, we looked at negative policy rates during the global financial crisis. We monitored the use in other jurisdictions. We continue to do so, but we do not see negative policy rates as likely to be an appropriate policy response here in the United States.
MICHELLE SMITH. Okay, we’ll go to the Financial Times.
BRENDAN GREELEY. 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 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?
CHAIR POWELL. 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 labelled, that’s of less interest to me. I think we are very clear in our minds what we’re doing this for and what the logical effects would be, which would be both better market function and you know, when there’s better market function it will be, you know, policy will be supporting the economy better.
MICHELLE SMITH. Okay, Bloomberg TV.
MICHAEL MCKEE. Thank you, Mr. Chairman, I want to ask some timing questions here. First, on the whatever it is, QE, or not QE, you talk in the press release about increase over coming months. Is there a timetable for that? How long are we talking about? Seven hundred billion, obviously over two months is a lot different from 700 billion over the course of a year. And do you have a date where you would reevaluate and perhaps add more, or end the program? And the same with the interest rate cut to zero. How long do you think that might last? And would you be inclined to quickly go back to a higher level, the 100 basis points or more that you cut it from? Or would you anticipate that this will be a long, slow process going back?
CHAIR POWELL. Okay, so sorry.
MICHELLE SMITH. Mike, can you ask your question?
CHAIR POWELL. What was it again? Just tell me, I can’t read my writing.
MICHAEL MCKEE. I was asking about timing. How long a period are we talking about for the QE purchases and how long do you anticipate keeping rates low, and how fast would you bring them back up again?
CHAIR POWELL. Okay. Sorry. So, that’s the incoming months language. Let me tell you what we were doing there. So, there’s no monthly cap here. There’s no weekly cap. The desk is going to go out and it’s going to buy at a strong rate that we think will restore market function, restore liquidity as quickly as it can be restored. And that language is open-ended. And it’s meant to send a signal to the market that you know, we’re not going to be bound by, for example, 60 billion a month or anything like that. We’re going to go in strong, starting tomorrow. And we’re going to buy across the curve. And we’re going to buy MBS. And we’re really going to use our tools to do what we need to do here, which is restore these important markets to normal function.
So, that that’s really what that is. As far as the policy rate, what we’ve said is that we will maintain the rate at this level until we’re confident that the economy has weathered recent events and is on track to achieve our maximum employment and price stability goals. So, you can see, that’s the test we’ve written down. And if you look at it, you’ll see that some things have to happen before we would consider. We have to become confident that the economy has weathered these recent events and also, is on track to achieve our maximum employment and price stability goals. So, that’s a test we’ll be looking at, and I think it suggests that you know we’re going to be watching, and willing to be patient certainly.
MICHELLE SMITH. Okay, we’ll go to Market News.
JEAN YUNG. 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 take-away 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.
CHAIR POWELL. Thank you. Yeah, 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 Treasuries and MBS. So, we did that and as you pointed out, the take-up was not as high as many had expected. And we did learn something from. 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, when 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 a broad support the Committee to provide really substantial amounts of liquidity. And I think you can see us working through different solutions and finding the one that we think really will work and then acting quite vigorously, quite aggressively tonight to implement it.
The Special Note summarizes my overall thoughts about our economic situation
SPX at 2426.18 as this post is written