Good morning and welcome to the Peterson Institute for international economics. It is my pleasure and privilege powell,me back jay chairman of the board of governors to the Federal Reserve. Know, jay, his service. I just want to remind people that he previously served as the under secretary of treasury under george h to be bush, working on financial institutions, the treasury, and between that and his joining the board of governors in 2000 2012, he was a visiting scholar at the department of policy center. At the time when fiscal policy is as much or more critical, it is hard to imagine we could have anybody better than jay powell. Chairman powell tanks. Its great to be back. The coronavirus has left a devastating human and economic toll as it has spread. This is a Worldwide Public Health crisis and healthcare care workers have been the First Responders showing courage and determination and earning our lasting gratitude. Othere the legions of central workers who put themselves at risk every day on our behalf. Have temporarily withdrawn from many kinds of economic and social activity to help slow the spread of the virus. Some sectors of the economy have been closed since mid march. People have put their lives and livelihoods on hold, making enormous sacrifices to protect not just their own health, but also their neighbors and the broader community. Affect, burdenl has fallen most heavily on those least able to bear it. The scope and speed of this downturn are without modern precedent, significantly worse than any recession since war two. We are seeing a severe decline in economic video and employment. Already the job gains of the last ticket have been erased. Since the pandemic arrived just two months ago, or than 20 Million People have lost their jobs. A fed survey released tomorrow reflects findings similar to others. Among people working in february, almost 30 of those in households making less than 40,000 a year had lost her job in march. This reversal of fortune has caused a level of pain that is hard to capture in words as lives are appended up ended. This downturn is different than those who came before. Earlier in the postworld war ii. , sessions were late to a cycle of high inflation. Lower inflation levels of recent decades have brought a series of long expansions, often accompanied of the buildup of imbalances. Asset prices that reached unsupportable levels, for instance, were important sectors such as housing that boomed unsustainably. Current downturn is unique in that it is attributable to the virus and the steps taken to limit its fallout. This time, high inflation is not a problem. Pop, and no bubble to no unsustainable boom to bust. The virus is the cause, not the usual suspects. Something worth keeping in mind. Today i will discuss measures taken so or to offset the economic effect of the virus and the path ahead. Governments around the world have responded quickly with measures to support crews who have lost income and businesses that have closed or seen a sharp drop in activity. The response here in the u. S. Has been particularly swift and small. And forceful. Today congress has provided support for households, as this is, health care providers, and state and local governments. About 14 of gdp. While the coronavirus shock appears to be the largest on record, the physical response has also been the fastest and largest response for any postwar downturn. Part of me. At the fed, we have also acted with unprecedented speed and force. After rapidly cutting the federal funds rate, we took a wide array of additional measures to facilitate the flow of credit, which can be grouped into four areas. First, outright purchases of treasuries and agency orchids backed securities to restore function with functionality in these markets. Second, liquidity and funding measures. Third, with additional backing from the treasury, facilities to ofe direct support the flow credit to households and state and local governments. Fourth, temporary regulatory adjustments to encourage banks to expand their Balance Sheets to support their customers. The fed takes actions such as these only in extraordinary circumstances, like those we face today. For example, our authority to extend credit directly to private, nonfinancial businesses and state and local government exists only in unusual circumstances and with the consent of the secretary of the treasury. When this crisis is behind us, will put the emergency emergency tools away. While the response has been timely and large, it may not be the final chapter there given that the path ahead is highly uncertain and subject to significant downside risks. Economic forecasts are uncertain at the best of times, and today the virus raises new questions. How quickly will it be brought under control . Can you breaks be avoided . Outbreaks be avoided . How long will it take confidence to return . What will be the scope and timing of new therapies testing for a vaccine . The answers will go a long way toward setting the timing and pace of the recovery. Since the answers are currently unknowable, policies will need to be ready to address a range of possible outcomes. To overall policy response date has provided a measure of relief and stability and will provide some support to the recovery comes. Crisis coronavirus raises longerterm concerns as well. Deeper andshows that longer sessions can leave behind lasting damage to the productive capacity of the economy. Avoidable insolvencies and way on growth for years to come. Long stretches of unemployment can damage or in workers careers as their skills lose value and their professional networks dry up. Smallss of thousands of and mediumsize businesses across the country would destroy the lifes work of many businesses and community leaders. And limit the strength of recovery. These businesses are a principal source of job creation, something we will need as people seek to return to work. A prolonged recession and weak recovery could discourage Business Investment and expansion, further limiting the resurgence of jobs and the pace of technological advancement. The result could be an extended. Of limitedded period productivity growth. We ought to do what we can to limit these outcomes. At the fed we will continue to use our tools to their fullest, until the crisis has passed and the economic recovery is underway. Hasll though that the fed lending powers, not spending powers. A loan can provide a bridge across temporary interruptions, and those loans will help many borrowers. Recovery may take some time together momentum and the passage of time can turn liquidity problems into solvency problems. Additional support could be costly, but worth it if it helps avoid longterm damage and leaves us with a stronger recovery. This tradeoff is one for our elected representatives. Again, and i look forward to our discussion. Thank you, mr. Chairman. To start where you started. Time and since becoming chair have spoken about the distributional aspects of running the economy hot. Hit, you wereemic getting very close to something that looked genuinely like convergence in incomes for excluded groups. As you pointed out, it is those least able to air this burden who were being hit right now. See it isard, do you possible to get back to the full employment we had . You mentioned scarring of workers. How much does quick action now to fit us in terms of longerterm Unemployment Rate . Past sometimese when people talk about histoesis, people say we cant get the we cant unemployment down because of scarring. I think the fed is demonstrated in recent years you experiment. How do you see the federal in terms of its mandate on unemployment . First, let mel say it was a great period to watch unemployment declined and continued declining, and continued declining and not see either wage or Price Inflation move up. I think weve learned something very fundamental about our ability to associate unemployment levels of unemployment, with inflation or other imbalances. I think that is a lesson we will be caring for. Frankly, overen, the course of the last year or so with our fed listens events we made a series of 14 different events and engaged with from communities across america. Modern low and moderate income communities. What we heard was, this is the best labor market in 50 years or peoples lifetimes. Their advice was, please keep this going. We are feeling opportunity we havent felt, they didnt feel the first seven or eight years of the expansion but they started to feel that in years 9, 10, and 11. I think two months ago we were looking ahead more of that. It is particularly painful to see all of that put aside, at least temporarily. As i mentioned, the numbers show clearly that it is lower paid people who are bearing the brunt of this. Although people are suffering all across the income spectrum. So, in terms of getting back, i probably over the course of the next month or so, unemployment will peak. More normaleturn to levels of Economic Activity, it is a reasonable expectation that unemployment will start to decline again. Itmay decline sharply, that is also likely to remain well above the levels we saw earlier this year and all through 2019 and 2018, which were 50 year lows. It will take some time to get back to where we were. I have every reason to think we can get back. Should substantially recover once the virus is under control. So, ending with your final question, i think it is a major the way i look and the way we are looking at the economy now at the fed. Onplace less weight realtime estimates of the natural rate of unemployment. To movehat we were able down to 3. 5 and be there without really any signs of a reaction from inflation or other imbalances in the economy. So, it is a place we can get back to, we will get back to. It will take some time. The main thing to do is get on that road to recovery and stay on it for a long period of time. That is what i expect will happen. Terrific. I want to play praise you for talking about not putting much faith in the stars and being more pragmatic. Pointg to the second main. You emphasize the idea that war stimulus, but not just stimulus, more support for the supply side of the economy is needed and that it will probably have to be fiscal policy, not Monetary Policy that does that. Offhort, that if we cut fiscal stimulus to small, too soon, it is a supply issue. That said, there are concerns people raise about fiscal policy in the future. Even though all reasonable fiscal hawks know we should be spending right now. What does fiscal responsibility look like a year or two down the road . Especially if we still have 10 , 8 unemployment . How should we obviously this is for elected officials, but what type of principles which you want them to be thinking about in terms of the recovery of the economy . When i was at bank of england i got into a public tiff with the governor. Governor king thought it was the the role to lecture parliament. I didnt. Dont play all we formal role in fiscal policy. Meaning that, we wouldnt take a position, i wouldnt take a position in supporting a particular bill. I might answer questions privately from members, but it is not our role to supervise congress. It is the other way around. Creature of congressional action. They have oversight over us. Over time, i have said things that are fairly highlevel about getting back on a sustainable fiscal path. I do think that is important and appropriate because it is important for the long run of the economy, which is part of our bailiwick. Its worth remembering, congress has moved quickly and with real force here. Appropriately so. This is the biggest shock our economy has felt in modern times and this is the biggest fiscal response. It came very quickly. That is a good thing. The issue is, there is a lot of uncertainty ahead. It may take even just a few more months then we would like for the economy to recover. Beenlleagues and i have speaking to a wide range of notforprofit, forprofit businesses all across the u. S. Economy. What comes through is, there is a sense our growing sense, i think that the recovery may come or slowly then we would like. But it will come. That may mean it is necessary for us to do more. The tradeoff is, we know that of unemployment shadow peoples lives en masse. We also know that rates of encryption can weigh on Economic Activity for years. Small and mediumsized businesses are the heart of our economy. Typically, often anyway, the product of generations without work to create. Become insolvent just because Economic Activity doesnt recover fast enough, i think we would lose more than just business. I think we lose something fundamental and it wont be able to be replaced quickly. In terms of fiscal discipline, i absolutely believe that we must, and indeed we will eventually, have to return to a sustainable fiscal path. That just means you have to get the economy growing faster than the data. And have that happen for a long period of time. And gradually reduce the ratio to the size of the economy. That is how you do it successfully. Many countries have done it successfully. I do think the time to do that is doing good times. You know, when the economy is strong and unemployment is low, that is the time to be addressing those concerns. Now, when we are facing the biggest shock the economy has had in modern times, is for me not the time to prioritize considerations like that. I think we can come back to them fairly quickly. Just to say, a few years down the road and the economy is well and truly recovered. Or, at least mostly recovering. Thank you for that. Turning to some operational policy issues. Of course, reporters would love to ask you about negative rates. I would like, before getting what i am sure will be your answer on that, i would like to ask a little more deeply about u. S. Context. Qe and are looking at is rate cuts are substantive. Qethat if you can do more for all of these various credit , you could always scale that up and not bother with negative rates, which may have negative political effects. The flipside is that, on the others there are people who argue negative rates have a particular use in terms of asrency valuation, but also my colleagues have argued, it my need even more qe. How do you feel about the arguments for and against negative rates in the u. S. At this point . Chairman powell let me start by viewg that the committees on negative rates really has not changed. This is not something we are looking at. We chose not to implement negative rates during a Global Financial crisis. As you pointed out, on asset purchases when we were at the zero bound, weve said that we on those toolsy which are tried and are now a part of our toolkit. Backct, we revisited this in october. Revisited this question and the alltes said that participants currently did not judge that negative rates did not appear to be an attractive Monetary Policy. Couple ofd say a reasons behind that. One is we feel that our tools work. The tools that we have used. For guidance and asset purchases work. Freee now doing these facilities, we think they work too. We think we have a good toolkit and we have evidence it works. I think that is what we will be using. Also, the evidence on the effectiveness of negative rates is very mixed. Are there is research that says they have been effective. There are plenty of doubters. The issue really is, the concern over interrupting the intermediation process. Profitability, thereby reducing the availability of credit in the economy. It is an unsettled area. I would call it i know there are fans of the policy, but for now it is not something that we are considering. We think we have a good toolkit and that is the one we will be using. Delighted to hear you say that. Let me turn out to another question about your toolkit. What the Federal Reserve does is provide people with liquidity, with loans. In the past financial crisis, one issue was, money was put out through qe and other measures, but it didnt get invested in the real economy because the old keynesian notion of pushing on the string. There was great uncertainty, expectations were poor, and so on. What makes you think that some of the facilities being made available now will be taken up in a way and used in the real economy in a way that they werent in 2000 and eight two 2000 and 10. 20082010 . God willing, i know you want to help these people. Those sectors may shrink. In the real world. Why do we think they are going to take these loans . Well, as iwell mentioned in my remarks, we cant address liquidity problems. Really veryat are directly affected by the coronavirus are in a special place. The airlines, hotels, some restaurants. Thely, we will need to see economy recover quickly for them to enough it from this. We are in a position where we will lend to Companies Based on their earnings from 2019, as we have said. If they qualify, we will lend to them up to that limit. We are willing to take that risk. Think we will, i be in a position to help many, Many Companies. I hope that is the case with these facilities. We have helped already, through the announcement effect where markets have loosened up and started to function much better than they were just a couple of months ago at the early part of the crisis where markets were not functioning well. You see that and that has enabled Many Companies to finance themselves. That is a good thing. It may mean that we actually are needed. I think and main street, those are companies that dont have market access. They will need these loans. We want to provide them. Let me just say about main street for those those for those who dont follow this, this is for companies that have less than 5 billion in revenue. Fewer than 15,000 employees. It is probably for companies that dont have access to the capital markets. These are the great small and mediumsized companies. An incredibly Diverse Group of companies, very Diverse Industries and credit needs. We are trying to create products that address as broad a swath of those as we can. Operationally, it is very complex. People have credit agreements, they have existing credit agreements, so we have to work through that. We are in the process of doing that. I think main street will be able to go live in a couple of weeks. I am hopeful we can meet the demand that is out there. We are committed to continuing to adapt. This is completely unique in our history so, we are learning as we go. As we go we will be willing to adapt. I did make this point in my remarks. Tocan make learns loans insolvent borrowers. Who dont have access to other sources of capital. That is what the law requires of us. Mentioned, the passage of time is all it takes to turn a liquidity problem into an insolvency problem. We will be a big help for a while, but up or longer period of time, it may be that more physical help is needed. How, ii dont prescribe just say that it could be costly, but the benefits would also be potentially substantial. Thank you. Another area where you and your colleagues were ahead of the curve before the pandemic was, you are putting emphasis on the effect of events abroad on the u. S. Economy. Not just trade. Maury did a good paper on that for the conference last year. I was wondering if you could take us through how you see what is happening in the rest of the world affecting u. S. Recovery right now . And how do you see light into the dollar, which was enabled by fed and lines the Central Banks provided . How that benefits the u. S. Economy as well as the world . We are, of course, the petersen thee inc. To duchenne peterson institution, so we think it does matter. Chairman powell the Global Economy and even more so the Global Financial markets are tightly integrated. Time, over then years that is become more the case. It is in our interest for the Global Economy to be strong. We need people to buy our general, wein benefit from a stronger Global Economy. Lines, wef the swap are the worlds reserve currency. All around the world, people Fund Economic activities from time to time. In dollars. They buy credit assets, for example, u. S. Mortgage loans. They wind up being bought by foreign banks. So that these dollar funding markets around the world. They are actually fairly important to the u. S. Financial markets and the u. S. Economy. They are effectively providing credit to u. S. Households and businesses through these funding markets. You are right, as the reality of in a couple dawned of months ago, there was understandably in Financial Markets a flight to safety. That meant short maturity, fixed income, u. S. Dollar sovereign credit. Remarkable, unprecedented levels of 11 illiquidity. Resolve swap basis widening and threatening those dollar funding markets. Also, playing a role in what was happening in the u. S. Treasury market. Becoming more liquid and dysfunctional. What swap lines do is, we provided dollar, we swap dollars for local currency with the central bank. That bank faces off against its banks and provides funding. It had a very constructive effect on calming down those markets. The safetyeducing premium for owning u. S. Dollars. It has played a role in supporting a return to more normal conditions. More broadly, i think what we have been able to do is to help markets return to more normal functioning, which has the effect of buying time. Buying time for health care professionals, buying time for governments to respond at a time when the Financial System is working. And we dont have to face dysfunctional markets and the loss of Credit Availability to companies and households. Those measures on the swap lines and the facilities we have done have really been somewhat effective at achieving that. Thank you so much jay. We are out of time and you obviously have a world to continue to say. I want to expect express my admiration for the whole team at the Federal Reserve. You are providing competence, calm, concern for the right issues and nonpartisan factbased work at a time when we needed. Thank you. Chairman powell thank you very much, adam. The Senate Select subcommittee on the Coronavirus Crisis today holds its First Reading with Public Health experts, including dr. Scott gottlieb. Watch live at 3 00 p. M. Eastern on cspan, online at cspan. Org, or listen live on the free cspan radio app. Washington journal primetime, a special evening edition of washington journal. On the federal response to the coronavirus pandemic. Are dr. S also joining the program, Kendra Mcmillan of the American Nurses association. Join the conversation. Watch washington journal primetime tonight at 8 00 p. M. Eastern on cspan. Friday the u. S. House will meet for the first time in more than three weeks to address the coronavirus pandemic. A fifth relief package will be on the floor. 3s one providing more than trillion. Money would go to support state and local governments, coronavirus test skin treatment, and Cash Payments to americans. House also plans
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