The Federal Reserve, which has deployed a range of crisis management tools to help the economy weather the fallout from the pandemic, has plenty more capacity to act, a top Fed official said.
Speaking to Bloomberg Radio on Tuesday, Dallas Federal Reserve Bank President Robert Kaplan insisted the nation’s central bank is far from being out of ammunition, saying, “We have the ability to do additional asset purchases. We’ve got plenty of dry powder.”
Kaplan’s remarks reinforce remarks made by Federal Reserve Chairman Jerome Powell, who was asked in an interview on CBS’ 60 Minutes last month whether the Fed had done all it can do to backstop the economy in the face of the pandemic.
“There is a lot more we can do,” Powell replied, adding, “We’re not out of ammunition by a long shot.”
“No, there’s really no limit to what we can do with these lending programs that we have. So there’s a lot more we can do to support the economy, and we’re committed to doing everything we can as long as we need to,” the Fed chairman added.
In Senate testimony Tuesday, while Powell again vowed to use the Fed’s full range of tools to help the economy recover, he also renewed calls for lawmakers to provide more fiscal support, which he called a “critical difference” in limiting long-lasting damage to the economy. He frequently reminded lawmakers that the Fed could lend but not spend, unlike Congress.
Despite recent signs of improvement including a surprise gain in employment and a record rise in retail sales last month, the damage done by forced economic shutdowns to fight COVID-19 has left a deep hole to fill, especially on the employment front, Powell said.
“Something like close to 25 million people have been displaced in the workforce, either partially or through unemployment, and so we have a long road ahead of us to get those people back to work,” Powell told the Senate Banking Committee.
Robert Johnson, Professor of Finance at Heider College of Business, Creighton University, told The Epoch Times in an emailed statement that the severity of the economic impact of the pandemic justifies extraordinary steps, even though some analysts may find them “alarming.”
“Monetary measures alone will not ensure that the U.S. economy will weather the pandemic. Coordinated monetary and fiscal measures are called for,” he said. “Given that I believe the recovery will be years and not months—and, W-shaped and not V-shaped—I feel that more fiscal stimulus measures are warranted.”
The Fed has slashed interest rates to near zero, has been buying bonds to keep financial conditions easy, and has opened up a raft of lending programs to backstop large parts of the economy. One such emergency program launched on Tuesday involves buying corporate bonds directly, which should let companies continue borrowing money from credit markets despite the toll of the outbreak on corporate earnings.
Kaplan on Tuesday spoke at a webinar hosted by New York University, during which he was asked about what it would take for the Fed to wind down its emergency asset-buying programs.
He spoke of the need to evaluate factors like how the economy unfolds, what the health care response is, how quickly the job market improves, and what happens to inflation.
“I want to watch all those things” over the next several months, Kaplan said, “before making a judgment about what the appropriate next step is.”
Kaplan added he expects policymakers to make a pivotal decision on the Fed’s unprecedented asset-buying program “sometime in the fall.”
Reuters contributed to this report.