May 4, 2020 — Fed Digging In for a Long Road to Recovery

MAY 4, 2020 – FED DIGGING IN FOR A LONG ROAD TO RECOVERY

The Fed announced plans to back private debt markets last week, which caused the stock market to rally.  But the Fed realizes a lot more is needed to fight the aftereffects of the virus as the US economy starts to reopen. 

Fed Chair Jerome Powell delivered a message last week that said, “the Fed cannot carry the economy alone.” They will use the full range of tools available to support the country, but think the government needs to step up and spend more money to prevent the damage from becoming deeper.  Powell said the policy makers should focus their efforts on protecting businesses, households and workers from avoidable insolvency.  And , even though such actions “will come with a hefty price tag, we would come out of this eventually with a stronger economy.”

Since mid-March, the Fed has bought nearly $2 trillion in Treasury and mortgage securities to repair financial markets. As rates cannot go lower, the Fed must focus on how to manage the pace of bond purchases and how to signal interest rates will remain low for a long time.

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