Yesterday the Fed’ s Chair Jerome Powell continued his argument for the rejection of using a negative interest rate policy in the US, highlighting the fact that the Committee’s view has not changed and cited the October 2019 FOMC meeting minutes. Those minutes noted ‘All participants judged that negative interest rates currently did not appear to be an attractive monetary policy tool in the United States’.
The focus heading into his speech at the Peterson Institute for International Economics had been how Powell would react to negative rate pricing seen in Fed fund futures and swap markets over the last few days. Earlier this week, we had heard many Fed speakers also down playing the prospect of negative rate policy leading up to yesterday, and Powell’s remarks hammered home that same point.
Powell did hint that policymakers may have to use some additional weapons to pull the country out of an economic mire that has cost tens of millions of jobs and caused ‘a level of pain that is hard to capture in words’. Whilst he did not specify what or how any supplementary measures would work, he did say the pandemic had triggered a situation unlike any previous recessions the U.S. has endured, believing the response may have to be more from Congress than the Fed.
On the economy, Powell said ‘The scope and speed of this downturn are without modern precedent, significantly worse than any recession since World War II’ adding the recovery could take more time to gather speed than initially thought. He added that any ‘Additional fiscal support could be costly but worth it if it helps avoid long-term economic damage and leaves us with a stronger recovery’. He also believed ‘While the economic response has been both timely and appropriately large, it may not be the final chapter, given that the path ahead is both highly uncertain and subject to significant downside risk’.
At least his handling of the crisis has pleased his boss for the swift action taken to help support the economy. The leader of the free world told reporters at the White House yesterday ‘He has done a very good job over the last couple of months, I have to tell you that’ adding ‘Because I have been critical but in many ways I call him my MIP. Do you know what an MIP is? It's the most improved player’. Praise indeed.