By Jacob Bielanski
Emergency liquidity tools deployed to "bridge" the economy through response to the pandemic, including a new lending program and near-zero interest rates, will be shelved once the central bank was confident a post-outbreak rebound was underway, Fed Chair Jerome Powell said in a recent speech.
Federal Reserve Chair Jerome Powell spoke via webcast April 9 to The Brookings Institute on the central bank’s response to the COVID-19 (coronavirus) outbreak, contrasting the Fed’s recently-announced "lending" powers to the "spending" powers authorized under the Coronavirus Aid, Relief and Economic Security (CARES) Act. "The Fed can only make secured loans to solvent entities with the expectation that the loans will be fully repaid," he told a virtual audience of Brookings’ Hutchins Center on Fiscal and Monetary Policy. "But there will also be entities of various kinds that need direct fiscal support rather than a loan they would struggle to repay."
In addition to the "unprecedented extent" to which the Federal Reserve had utilized its Section 13(3) powers to authorize provide over $2 trillion in lending (see Banking and Finance Law Daily, April 9, 2020), Powell also committed to near-zero interest until the central bank saw a return to pre-outbreak conditions (see Banking and Finance Law Daily, March 16, 2020). "We will continue to use these powers forcefully, proactively, and aggressively until we are confident that we are solidly on the road to recovery," Powell said.
Powell also touted the Federal Reserve’s actions early on, helping re-establish various credit channels for homes, businesses, and local governments that he said had sunk into "dysfunction" during the disruption of the early outbreak. Conditions in those markets had "generally improved" after the central bank’s actions, he said.
The Federal Reserve would "put these emergency tools away," Powell assured listeners, once markets and institutions were able to resume regular economic activity. He called current economic response to the outbreak a "bridge," carrying the economy through the crisis to a "regained economic strength on the other side." "When the spread of the virus is under control, businesses will reopen, and people will come back to work," he said. "There is every reason to believe that the economic rebound, when it comes, can be robust."
Powell’s speech, entitled "COVID-19 and the economy," also included a thanks to the workers on the "front lines" of the response, including "those working in health care, sanitation, transportation, grocery stores, warehouses, deliveries, [and] security" among "countless others."
"We watch in collective awe and gratitude as these dedicated individuals put themselves at risk in service to others and to our nation," he said.
Companies: The Brookings Institute
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