Federal Reserve Chairman Jerome Powell expressed caution about reopening the economy too soon, saying “we all want to avoid a false start” in a speech Thursday morning just hours after the central bank announced a new multitrillion-dollar round of emergency measures.
“This is going to be, and is, a very difficult time for many, many people,” he said in remarks delivered online, under the auspices of the Brookings Institution.
On Thursday, the Department of Labor announced another surge in first-time filings for unemployment benefits. Over the last three weeks, more than 16 million Americans have applied for help.
The Fed’s new, $2.3 trillion relief package includes an emergency lending program and plans to buy more assets, such as municipal bonds.
“We are looking for places that are very important to the real economy,” Powell said. “Places that really affect people’s lives.”
After an emergency meeting in early March, when the Fed decided to lower rates to near-zero and expand its bond-buying program, there was concern among investors the Fed had few tools remaining in its toolbox. In recent weeks, Fed policymakers have proven them wrong.
On Capitol Hill, lawmakers are debating the need for more fiscal support. In his remarks, Powell said further support is “likely to be appropriate,” noting the Fed is not responsible for setting fiscal policy.
“As a society, we should do everything we can to provide relief to those who are suffering for the public good,” Powell said, stressing that while the Fed can provide loans, it is not in a position to give grants.
“The Fed can only make secured loans to solid entities with the expectation that the loans will be fully repaid,” he said. “Some entities will need direct fiscal support.”
This week, two past Fed chairs have lent their support to its current policymaking. Former Federal Reserve Chair Janet Yellen spoke to lawmakers, and she gave an interview to CNBC. Ben Bernanke also delivered an address at the Brookings Institution.
In his comments, Bernanke said fiscal legislation shouldn’t be seen as a stimulus, saying, “This is more like a natural disaster, and the response is more like emergency relief than it is a typical stimulus or an anti-recessionary response.”
As Americans continue to stay home, and businesses remains shuttered, economists and policymakers have begun to discuss what a return to normal would look like, and when it could happen.
“That is not a judgment that is assigned to the Fed to make,” Powell said. “The Fed’s role is to provide stability and relief during this period when the economy is shut down.”
This week, the Centers for Disease Control and Prevention issued guidance on how companies should prepare for front-line workers to return to work.
“I do think that it is time to have a serious public conversation and a lot of analysis about that,” Powell said. “We need to have a plan nationally for reopening the economy. We all want it to happen as fast as possible. We all want to avoid a false start.”
Asked for his forecast for the labor market on the heels of the new jobless data, Powell noted Fed economists have had to study and wrestle with science and public health data. “These are not typical economic questions that our great economists are practiced and skilled at answering,” he said.
During his comments, the Fed chair emphasized that this is, first and foremost, a public health crisis. Powell said his “expectation is that the second quarter will be a very weak one,” and he is not worried about inflation.
Bernanke, who devoted his academic career to studying the Great Depression, rejected analogies to that economic crisis in his comments. Like Powell, he is optimistic about the economy’s prospects — provided that policymakers pay attention to public health experts.
“I think the U.S. economy will recover, and will, within a few years, only show modest marks of this experience, he said. “I think that if we are patient and do what we know we should be doing, we will come out OK on the other end.”