The US Federal Reserve would provide essentially unlimited lending to support the US economy as long as it is damaged by the COVID-19 pandemic, Chairman Jerome Powell said yesterday.
In an interview on NBC’s Today show, Powell said that the central bank’s efforts are focused on helping the economy recover quickly once the threat from the coronavirus has passed.
Powell also acknowledged that the economy “may well be” in a recession, but said that this is a unique downturn in that it was caused by efforts to control the disease.
The economy itself was strong before the outbreak began, he added.
“If we get the virus spread under control fairly quickly, then economic activity can resume, and we want to make that rebound as vigorous as possible,” Powell said.
The Fed has this month taken numerous steps to bolster lending and the economy. It has cut its benchmark interest rate to nearly zero, embarked on an unlimited bond-buying program to pump cash into the financial system, and set up several emergency programs intended to ensure that banks can keep lending to companies and city and state governments.
The Fed’s ability to lend is somewhat constrained by the amount of capital provided by the US Department of the Treasury to offset any credit losses, Powell said, adding that the central bank can lend US$10 for every US$1 of cash that the department provides.
An economic rescue bill approved by the US Senate early yesterday includes US$425 billion that the department could use to backstop the Fed. That would allow the Fed to boost its lending programs to an astronomical US$4.25 trillion.
“Wherever ... credit is not flowing, we have the ability in these unique circumstances to temporarily step in and provide those loans, and we will keep doing that, aggressively and forthrightly,” Powell said.
Asked if the Fed would run out of ammunition to support the economy, Powell said “no.”
“When it comes to this lending, we’re not going to run out of ammunition. That doesn’t happen,” he said.
Still, Powell said that the economy’s path would be largely dependent on the length and severity of the viral outbreak.
The Fed’s policies would likely have their greatest effect when the economy does start to rebound, which he said could happen in the second half of this year.
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