Fed’s Powell fears second coronavirus wave

Reiterates central bank’s vow to keep fighting crisis

WASHINGTON: Federal Reserve Chair Jerome Powell on Friday said a potential surge in US coronavirus infections could derail the recovery from the deep downturn triggered by the pandemic, even as he reiterated the central bank’s vow to keep fighting the crisis.

The Fed has gone all out to steady financial markets since March, lowering borrowing costs and creating credit backstops for companies and local governments reeling from the economic fallout of lockdowns to stop the spread of the novel coronavirus.

“I think a second wave would really undermine public confidence and might make for a significantly longer recovery and weaker recovery,” Powell said in a webcast with Alan Blinder, a Princeton University economics professor and former Fed vice chair.

“We of course would continue to react,” Powell said. “We are not close to any limits that we might have, I would say ... but I would worry almost more, that a second outbreak would undermine confidence.”

The remarks were a sombre reminder that the trajectory of the crisis facing the Fed is a function of the public’s health, a factor over which the world’s most powerful central bank has no control.

The US central bank has announced 11 programs to cushion the effects of the economic cratering, and all but two have come on line. The Fed is “days away from making our first loans” under the “Main Street Lending Program” to medium-sized companies, Powell said on Friday, and weeks from opening a lending program for states, counties and large cities.

Investors are now thirsty for clues about when the Fed may restart large-scale bond-buying and firm up promises about how long the purchases might continue. Powell’s remarks, his last public ones before the Fed’s June 9-10 policy meeting, did little to slake that thirst.

Staying the course

Powell has repeatedly promised to keep monetary policy loose until the recovery is well on its way and the US unemployment rate - widely expected to surpass 20% in the second quarter - has returned to healthy levels.

Global investors have been doing the Fed’s work so far, bidding down US Treasury yields to record-low levels - the yield on the benchmark 10-year note has been below 1.0% since late March.

Published in The Express Tribune, May 31^st, 2020.

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