On 9 April 2020, Jerome Powell, Chairman of the Federal Reserve Board, spoke at the Hutchins Center on Fiscal and Monetary Policy, The Brookings Institution, Washington, D.C. (via webcast) on Covid-19 and the Economy. Highlights of the speech:
The burdens of the crisis are falling most heavily on those least able to bear them. The CARES Act provides $2.2 trillion in relief to those who have lost their jobs, to low- and middle-income households, to employers, to hospitals and health-care providers, and to state and local governments. Additional legislation is in the works.
The critical task of delivering financial support directly to those most affected falls to elected officials, who use their powers of taxation and spending to make decisions about where we, as a society, should direct our collective resources.
FED contributes by providing relief and stability, and ensuring vigorous recovery (through its tools).
Interest rates lowered to near zero to bring down borrowing costs. Committed to keeping rates at this low level until we are confident that the economy has weathered the storm and is on track to achieve maximum-employment and price-stability goals.
Acted to safeguard financial markets in order to provide stability to the financial system and support the flow of credit in the economy.
Many of the programs to support flow of credit rely on emergency lending powers available only in very unusual circumstances as there is today, and with consent of the Treasury. This will continue forcefully, proactively, and aggressively until we are confident that we are solidly on the road to recovery. These are lending powers, not spending powers. FED can only make secured loans to solvent entities with the expectation that the loans will be fully repaid.
Comment: The full text of the speech is here. What it makes clear is that this is only an extraordinary measure for extraordinary times. It cannot be substitute for what the fisc has to by way of grants. The FED will confine itself to its tools, which will involve supporting institutions involved in taking the economy back to recovery, in the expectation that all such support will be paid back in full.
© G Sreekumar 2021
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