With interest rates near zero, Federal Reserve policy makers are likely to turn attention to other steps they could take to ensure a strong U.S. economic rebound once the coronavirus lock-down ends.
The Federal Open Market Committee is all but certain to keep its benchmark overnight rate in a target range of 0-.25 per cent, where it was lowered at an unscheduled FOMC on March 15 to help soften the pandemic’s blow.
The committee will release a statement at 2 p.m. with Chairman Jerome Powell holding a press conference 30 minutes later. Forecasts are not scheduled to be released at this meeting.
“Never underestimate the Fed,” said Diane Swonk, chief economist with Grant Thornton in Chicago. “The Fed will affirm it is still willing to use all tools at its disposal.” A Bloomberg survey of economists expects the central bank to keep rates near zero for three or more years.
Facing an unprecedented disruption that has put 26.5 million people out of work in the last five weeks, the Fed has slashed rates and pledged up to US$2.3 trillion in loans to aid businesses and state and local governments.
Powell can expect questions on whether the Fed is prepared to expand the scope of some of its lending programs, provide assistance to specific industries, and is it considering yield-curve targeting, among other topics.
Here’s a preview of what to expect:
The Fed has already announced an expansion of its lending to municipalities to include smaller cities and counties than initially planned. Another area that might need support is mortgage servicers, and Powell has previously noted the important role the housing market plays in the economy.
In addition, Treasury Secretary Steven Mnuchin has raised the possibility of extending aid to oil companies struggling with the collapse in the price of oil. But that prospect may face significant hurdles because the central bank is averse to lending to specific industries to avoid picking winners and losers.
Because lending facilities are authorized by the Fed’s board of governors, they could be announced in conjunction with an FOMC meeting or at another time.
Forward guidance for interest rates will be a key issue for the committee. At the last meeting, the FOMC said it would keep rates near zero until the economy weathers the crisis and moves toward meeting the central bank’s full employment and price stability mandates.
“The current forward guidance is confusing,” said Roberto Perli, a former Fed economist and partner at Cornerstone Macro LLC in Washington. “I expect the FOMC to clarify and lean more” in the direction of meeting its mandates, which may mean zero rates for several years.
Some Fed watchers advocate officials adopt specific thresholds to anchor how long they will keep rates near zero, including reprising targets the Fed used back in 2012 to assure investors that there would be no rate hike until unemployment falls to a certain level and inflation rises.
But this meeting may be too soon to provide that level of guidance, which is deliberately designed to stimulate economic activity, given millions of Americans are still sheltering from the virus at home.
What Bloomberg Economists Say
“As consequential as Fed actions have been over the past several weeks, Bloomberg Economics expects the April FOMC meeting to be comparatively quiet with no major policy announcements.”
— Carl Riccadonna, Yelena Shulyatyeva, Andrew Husby and Eliza Winger
The committee will need to adjust its statement to reflect very weak economic data since the last meeting, including record jobless claims, rising unemployment and falling consumption. First-quarter economic growth likely declined by the most since the last recession, according to economists surveyed by Bloomberg.
“I’d expect the opening paragraph to reference the grim employment and consumer spending data that have come out, as well as the unprecedented decline in energy prices and the broader disinflationary forces that are at work,” said Jonathan Wright, economics professor at Johns Hopkins University in Baltimore and a former Fed economist.
The FOMC is also certain to discuss its balance sheet expansion with purchases of Treasury notes and mortgage-backed securities during the crisis.
It has bought hundreds of billions of dollars of bonds in recent weeks, ballooning its balance sheet to a record US$6.57 trillion and declaring on March 23 that its purchases would be open-ended and “in the amounts needed to support smooth market functioning.”
But it has more recently been scaling back the buying as market conditions calmed, though it continues to add to its securities holdings.
While the Fed has primarily been buying assets to smooth market functioning, one option would be to explicitly shift to say it was buying securities to try to push longer term rates lower as a financial stimulus measure also known as quantitative easing.
That might be an announcement for the months ahead as the economy reopens, rather than this meeting with the lock-down still in place in many parts of the U.S.
Yield Curve Control
Yield curve control — a cousin of QE — where the Fed announces it is targeting a specific yield for a specific maturity of Treasury securities, has been discussed by policy makers including Governor Lael Brainard as an option to strengthen the central bank’s forward guidance.
At the moment the Fed sets the overnight rate and allows market forces to determine longer-term borrowing costs.
The Bank of Japan began experimenting with yield-curve control in 2016 and currently maintains a target of 0 per cent for the yield on 10-year government bonds, versus a target of -0.1 per cent for its benchmark rate. Advocates say the benefit is a central bank may have to purchase fewer assets overall if it commits to pegging yields at a certain maturity.
Again, it may be too soon for the Fed to announce a decision to adopt such a measure — but Powell could certainly flag it as a possibility in the future if it comes up during the press conference.
Interest on Reserves
Officials could tweak a secondary rate, known as interest on excess reserves, which helps to keep their benchmark rate in its target range. But that would be a technical move, not a change in policy.
The effective rate — the average rate paid by U.S. banks when borrowing dollars overnight from other banks — dipped to 0.04 per cent on April 27 after trading at 0.05 per cent for most of April. The Fed has on multiple occasions adjusted IOER when the effective rate drifted to within 5 basis points of the range’s upper or lower bound.
Powell, in his recent public appearances including on NBC’s “Today” show on March 26, has tried to strike a reassuring posture, noting that while the economy is declining, this is not a typical downturn and he remains hopeful for a robust recovery.
“Powell is unlikely to change his tone much, while reiterating his recent optimism that there’s no reason that the economy can’t quickly recover following the end of the Covid-19 pandemic,” said Tom Garretson, senior portfolio strategist for RBC Wealth Management.
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The Canadian Press
WASHINGTON — After weeks of fraught delay, the federal government recognized President-elect Joe Biden as the “apparent winner” of the Nov. 3 election on Monday and gave the green light for co-operation on a transition of power. The move came after President Donald Trump suffered yet more legal and procedural defeats in his seemingly futile effort to overturn the election with baseless claims of fraud.General Services Administrator Emily Murphy cleared the way for Biden to co-ordinate with federal agencies ahead of his Jan. 20 inauguration after Trump’s efforts to subvert the vote failed across multiple battleground states.Trump, who has still refused to concede the election — and may never — followed up with a tweet that he was directing his team to co-operate on the transition. The president had grown increasingly frustrated with the flailing tactics of his legal team.Murphy, explaining her decision, cited “recent developments involving legal challenges and certifications of election results.”She acted after Michigan on Monday certified Biden’s victory in the battleground state, and a federal judge in Pennsylvania tossed a Trump campaign lawsuit on Saturday seeking to prevent certification in that state.It also comes as an increasing number of Republicans were publicly acknowledging Biden’s victory, after weeks of tolerating Trump’s baseless claims of fraud.“With Michigan’s certifying (its) results, Joe Biden has over 270 electoral college votes,” tweeted Mississippi Sen. Bill Cassidy. “President Trump’s legal team has not presented evidence of the massive fraud which would have had to be present to overturn the election. I voted for President Trump but Joe Biden won.”Yohannes Abraham, executive director of the Biden transition, said in a statement that the decision “is a needed step to begin tackling the challenges facing our nation, including getting the pandemic under control and our economy back on track.”He added: “In the days ahead, transition officials will begin meeting with federal officials to discuss the pandemic response, have a full accounting of our national security interests, and gain complete understanding of the Trump administration’s efforts to hollow out government agencies.”Murphy, a Trump appointee, has faced bipartisan criticism for failing to begin the transition process sooner, preventing Biden’s team from working with career agency officials on plans for his administration. The delay denied Biden access to receive highly classified national security briefings and hindered his team’s ability to begin drawing up its own plans to respond to the raging coronavirus pandemic.Murphy insisted she acted on her own.“Please know that I came to my decision independently, based on the law and available facts. I was never directly or indirectly pressured by any Executive Branch official—including those who work at the White House or GSA—with regard to the substance or timing of my decision,” she wrote in a letter to Biden.Trump tweeted moments after Murphy’s decision: “We will keep up the good fight and I believe we will prevail! Nevertheless, in the best interest of our Country, I am recommending that Emily and her team do what needs to be done with regard to initial protocols, and have told my team to do the same.”Max Stier, president and CEO of the nonpartisan Partnership for Public Service, criticized the delay, but said Biden’s team would be able to overcome it.“Unfortunately, every day lost to the delayed ascertainment was a missed opportunity for the outgoing administration to help President-elect Joe Biden prepare to meet our country’s greatest challenges,” he said. “The good news is that the president-elect and his team are the most prepared and best equipped of any incoming administration in recent memory.”Murphy’s action came just 90 minutes after Michigan election officials on Monday certified Democrat Joe Biden’s 154,000-vote victory in the state. The Board of State Canvassers, which has two Republicans and two Democrats, confirmed the results on a 3-0 vote with one GOP abstention. Trump and his allies had hoped to block the vote to allow time for an audit of ballots in Wayne County, where Trump has claimed without evidence that he was the victim of fraud. Biden crushed the president by more than 330,000 votes there.Under Michigan law, Biden claims all 16 electoral votes. Biden won by 2.8 percentage points — a larger margin than in other states where Trump is contesting the results like Georgia, Arizona, Wisconsin and Pennsylvania.Some Trump allies had expressed hope that state lawmakers could intervene in selecting Republican electors in states that do not certify. That longshot bid is no longer possible in Michigan.“The people of Michigan have spoken. President-elect Biden won the State of Michigan by more than 154,000 votes, and he will be our next president on January 20th,” Michigan Gov. Gretchen Whitmer, a Democrat, said in a statement, saying it’s “time to put this election behind us.”The Trump legal team dismissed the certification as “simply a procedural step” and insisted it would continue to mount legal challenges.Trump’s efforts to stave off the inevitable — formal recognition of his defeat — have faced increasingly stiff resistance from the courts and fellow Republicans with just three weeks to go until the Electoral College meets to certify Biden’s victory. Time and again, Trump’s challenges and baseless allegations of widespread conspiracy and fraud have been met with rejection as states move forward with confirming their results.In Pennsylvania, a conservative Republican judge shot down the Trump campaign’s biggest legal effort in Pennsylvania with a scathing ruling that questioned why he was supposed to disenfranchise 7 million voters with no evidence to back their claims and an inept legal argument at best.But the lawyers still hope to block the state’s certification, quickly appealing to the 3rd U.S. Circuit Court of Appeals in Philadelphia, which ordered lawyers to file a brief Monday but did not agree to hear oral arguments.The campaign, in its filings, asked for urgent consideration so they could challenge the state election results before they are certified next month. If not, they will seek to decertify them, the filings said.Biden won Pennsylvania by more than 80,000 votes.Pennsylvania county election boards were voting on Monday, the state deadline, about whether to certify election results to the Department of State. The boards in two populous counties split along party lines, with majority Democrats in both places voting to certify. After all counties have sent certified results to Secretary of State Kathy Boockvar, she must then tabulate, compute and canvass votes for all races. The law requires her to perform that task quickly but does not set a specific deadline.In Wisconsin, a recount in the state’s two largest liberal counties moved into its fourth day at a slow pace, with election officials in Milwaukee County complaining that Trump observers were hanging up the process with frequent challenges. Trump’s hope of reversing Biden’s victory there depends on disqualifying thousands of absentee ballots — including the in-person absentee ballot cast by one of Trump’s own campaign attorneys in Dane County.___Associated Press Writers Maryclaire Dale in Philadelphia, Jonathan Lemire in New York, Mark Scolforo in Harrisburg, Pa., Christina A. Cassidy in Atlanta and John Flesher in Traverse City, Mich. contributed to this report.Zeke Miller, David Eggert And Colleen Long, The Associated Press
Can't solve economy issue without solving COVID-19, says professor – KitchenerToday.com
It’s a classic case of trying not to put the cart before the horse.
There’s no doubt the economic disaster is caused by the COVID-19 pandemic, but an associate political science professor at Brock University indicates you can’t solve the economic crisis without dealing with the health crisis first.
“You can’t have a strong functioning economy if you’ve got the disease running rampant in the community, it just can’t happen,” Blayne Haggart told The Mike Farwell Show on 570 NEWS.
He said economists have been clear on the issue from the beginning, advocating for financial support on the health side and figuring out later how to pay for it.
Haggart said overall, while we started off the pandemic well and saw numbers begin to drop, not enough was done to prepare for fall and winter, such as adequate investments in contact tracing and testing.
He said when it comes down to it, just the mere presence of the virus is causing the economic problem, not the restrictions related to it.
“People are not going to go into shops (as per usual), even if there’s no government intervention, because people don’t want to die,” Haggart added.
“Some people will, but a lot won’t, so businesses are going continue to be depressed up until the moment where the disease finally hits a breaking point, where we’ve got to basically close things down, or everybody gets sick.”
“That’s the kind of roller coaster that we’re on, and the key is to get off it. The longer you wait, though, the more costlier it is to get off the roller coaster.”
Reimagining the global economy for a post-COVID-19 world – Brookings Institution
When the COVID-19 pandemic sent the global economy into a deep recession, it exposed structural weaknesses in economic institutions and highlighted the need for reform. The challenges countries face today are daunting, but this moment should be recognized as an opportunity to build back more sustainable and inclusive economies. David Dollar is joined by three Brookings experts—Eswar Prasad, Marcela Escobari, and Zia Qureshi—to discuss their forward-looking policy proposals for a post-COVID-19 world.
Prasad, Escobari, Qureshi, and Dollar are all contributors to a new report, “Reimagining the global economy: Building back better in a post-COVID-19 world.”
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