Fed chief Jerome Powell to make rare TV interview appearance on Thursday

WASHINGTON (BLOOMBERG) – Federal Reserve chairman Jerome Powell will make a rare televised interview appearance in a broadcast on Thursday (March 26), as the US central bank deploys an unprecedented array of tools to prevent the coronavirus health crisis from becoming a financial one.

Powell will be interviewed on the NBC Today show – one of the country’s main morning television programs – at 7:05am New York time (7:05pm in Singapore), according to an advisory released by the Fed.

It will mark the Fed chief’s first public remarks since he held an unusual Sunday press briefing by teleconference on March 15. That was following a policy meeting that the central bank conducted days early in order to speed stimulus to the economy and financial system.

Communication from the Fed chair has for decades been carefully choreographed, given the importance of signals to the public and to investors in particular. Former Fed chairman Alan Greenspan famously curbed on-the-record interviews with the press after a 1987 appearance on ABC’s “This Week with David Brinkley,” following which stocks dropped.

Ben Bernanke, who led the Fed during the financial crisis, made his own rare appearance in a televised interview on CBS’s “60 Minutes” program in March 2009, at the tail end of the global financial crisis that had hobbled the US economy.

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Fed cuts rates in emergency move to blunt coronavirus impact

WASHINGTON (REUTERS) – The US Federal Reserve cut interest rates on Tuesday (March 3) in a bid to shield the world’s largest economy from the impact of the coronavirus, but the emergency move failed to comfort US financial markets roiled by fears of a deep and lasting slowdown.

Indeed, though Fed chairman Jerome Powell reiterated his view that the US economy remains strong, he acknowledged that the spread of the virus had caused a material change in the US central bank’s outlook for growth.

The virus causes respiratory illness that has been fatal in an estimated 2 per cent of cases, and governments and companies have shut schools and restricted travel and large gatherings in response, crimping factory output in China where the outbreak began and disrupting production of goods worldwide.

“The virus and the measures that are being taken to contain it will surely weigh on economic activity, both here and abroad, for some time,” Powell said in a news conference shortly after the central bank said it was cutting rates by a half percentage point to a target range of 1 per cent to 1.25 per cent.

“We’ve come to the view now that it is time to act in support of the economy,” he said.

“I do know that the US economy is strong and we will get to the other side of this; I fully expect that we will return to solid growth and a solid labor market as well.”

Still, he acknowledged the outlook is uncertain and the situation “fluid.”

The decision was unanimous among policymakers. It was the first rate cut outside of a regularly scheduled policymaker meeting since 2008 at the height of the financial crisis, underscoring how grave the central bank views the fast-evolving situation.

Just over a week ago, most Fed officials said they expected the effects of the virus to be temporary and stuck to their view that after three rate cuts last year the US economy was well-positioned to weather shocks.

“The questions now become whether, how much, and when the Fed might deliver further monetary policy easing,” Oxford Economics analyst Gregory Daco wrote in a note. “If Fed officials deem that odds of an impending recession are elevated, they’ll continue to be very aggressive in cutting rates.”

After the Fed’s cut and initial jubilance on Wall Street over the early arrival of a rescue action from the central bank, losses in all three benchmark stock indexes deepened.

The yield on the 10-year US Treasury dropped below 1 per cent for the first time ever. Interest-rate futures traders priced in further Fed rate cuts in coming months.

“Normally, markets would welcome a rate cut, and they were hoping for it,” said Peter Kenny, Founder of Kenny’s Commentary. “Now that we’ve got it, the question is what’s next?”

With 90,000 cases worldwide in 77 countries and territories, the virus has upended global supply chains, with companies daily warning of hits to their sales and profits.

On Tuesday, the International Monetary Fund and World Bank cancelled their April meetings in Washington, joining the list of organisations pulling the plug on planned events.

EARLY DECISION

The Fed’s decision to cut interest rates before its scheduled policy meeting in two weeks reflects the urgency with which it feels it needs to act in order to prevent the possibility of a global recession, and opens the possibility that more action could come sooner than later.

Central bank easing can lubricate credit markets and boost demand by lowering the cost of borrowing. But, Powell noted, it cannot repair disrupted global supply chains or convince people to fly, attend meetings or even go to school, especially if local governments or companies bar such activities.

“We do recognise that a rate cut will not reduce the rate of infection, it won’t fix a broken supply chain; we get that, we don’t think we have all the answers,” Powell said.

Still, he said, it will help support “overall economic activity.”

Powell had earlier on Tuesday taken part in a conference call with the top finance authorities from the world’s seven largest advanced economies, which concluded with a statement that they would take all appropriate measures to support the global economy.

At his news conference, Powell said the Fed was in active discussions with other central banks, and said future coordinated action could yet arrive.

Already there has been action by other central banks. Earlier on Tuesday, central banks in Australia and Malaysia cut rates and on Monday the Bank of Japan took steps to provide liquidity to stabilise financial markets there.

US Treasury Secretary Steven Mnuchin applauded the Fed’s decision, saying it would help the US economy. In a tweet after the Fed move, President Donald Trump kept up what has been constant pressure on the central bank to do even more.

“More easing and more cutting,” he said.

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In next downturn, Fed may opt for quick, strong action

NEW YORK/SAN FRANCISCO (Reuters) – In the next economic downturn, the Federal Reserve and other central banks may need to roll out their big guns sooner and use them more aggressively, or risk getting mired in growth-sapping deflation or worse.

That was the argument laid out Friday by a group of veteran monetary policy analysts and Federal Reserve Governor Lael Brainard, who called for using now-familiar policy tools like forward guidance more forcefully, and adopt new ones like capping interest rates to bolster the Fed’s clout.

The broad approach appeared to have some support among other policymakers grappling with the how the Fed and other central banks should prepare to fight a future recession. If there is disagreement, it is not over the general idea that tools like massive bondbuying – or “quantitative easing” – are now a staple of central bank practice; it is over how specifically the Fed should spell out its future crisis-fighting plans in advance.

Intense efforts are underway at central banks globally to develop new ways to fight shocks amid low inflation and low interest rates that make conventional responses, like simply reducing a target borrowing rate, less potent than previously.

The Fed is in the midst of its own review and expects to put forward any changes to its framework by mid-year.

The discussion on Friday put some color on how that review is going.

Although the review has focused on how the Fed should pursue its 2% inflation target, downside risks to an otherwise healthy economy have raised the specter that policymakers may need to introduce unconventional policies sooner rather than later.

As Friday’s discussion got underway, a report showed U.S. business activity stalled this month and more people were reported to be infected with the coronavirus in China and elsewhere.

Stocks fell, yields on U.S. Treasuries sank and interest-rate futures traders were pricing in two U.S. interest rate cuts by year’s end. That would move the Fed ever closer to the “zero lower bound” where policies like quantitative easing would come into play.

Brainard’s call for expanding the Fed’s policy arsenal to battle coming shocks came in response to a paper showing that the central bank’s bond-buying and forward guidance deployed during the last crisis had only mixed results and that argued those tools could have been more effective had they been used more decisively.[L1N2AK1NG]

“The lessons from the crisis would argue for an approach that commits to maintain policy at the lower bound until full employment and target inflation are achieved,” Brainard said. “This forward guidance could be reinforced by interest rate caps on short-term Treasury securities over the same horizon.”

In the last crisis, the Fed did vow to keep interest rates at zero until certain employment and inflation targets were met, but only after years of trying other tools.

Yield curve caps, which would deliver more policy easing than forward guidance or bond-buying alone, would be new for the Fed, although other central banks have tried it.

Earlier this week, Richmond Fed President Thomas Barkin suggested he would be on board with a proactive approach to policy, though it was unclear how supportive he would be of new tools.

“I am convinced that we can act faster and with more commitment using tools we already have, such as forward guidance,” Barkin said.

Other policymakers weighed in on Friday with their own caveats.

“The reality is that you cannot continually go strong,” Atlanta Fed President Raphael Bostic said. “You have certain moments in time when you can hit it… Timing matters incredibly.”

Fed Vice Chair Richard Clarida told the conference that he is inclined to take less of a signal from markets when their cues conflict with what the Fed is hearing from businesses, households and economists, and from what their own models spit out.

That is the case currently, with economists and Fed policymakers projecting a hold on rates through this year, while interest-rate futures are pricing in rate cuts.

It is only when various signals all point in the same direction that they will have a material effect on Fed action, Clarida suggested. [L1N2AL0ZE]

To Brainard, communication is a key component of the Fed’s expanded tool box. She said the Fed should clarify in advance that “we will deploy a broader set of tools proactively to provide accommodation when shocks are likely to push the policy rate to its lower bound.”

Equally important, she added, “we should adopt a strategy that successfully achieves maximum employment and average inflation outcomes of 2 percent over time.”

Brainard said she supports a strategy in which the Fed would target a range of inflation outcomes that would allow it to achieve 2% on average overall, known as flexible average inflation targeting.

She also called, as have other Fed officials, for stronger fiscal responses in a downturn, since monetary policy alone will likely not be enough.

Citibank chief economist Catherine Mann went further.

“Policy coordination across countries may be an important way in which to deal with a global financial stress,” she told the conference. “Monetary policy cannot be the only game in town.”

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