What Else Can the Federal Reserve Do 

to Support a Coronavirus-Ravaged 
Economy? 

Analysts aren’t expecting much in terms of new Fed policies 

Federal Reserve Chairman Jerome Powell will speak with reporters on Wednesday afternoon to 
outline his expectations for the next few months as the economy struggles under the 
coronavirus pandemic.​(JACQUELYN MARTIN/AP-FILE) 
 
 
 
AFTER GUIDING U.S. ​monetary policy into uncharted territory in recent weeks – by lowering
interest rates to near-zero levels and committing to trillions of dollars in asset purchases and
Treasury-backed stimulus measures – Federal Reserve Chair Jerome Powell will address a
nation on Wednesday that is full of questions but relatively thin on remaining policy options to
combat the ongoing coronavirus pandemic.

That's not to say the Fed is backed into a corner; Powell has signaled that America's central
bank is willing to do whatever it takes to keep the U.S. economy and financial system afloat. But
with its already swollen balance sheet and interest rates as low as many experts believe they
can reasonably go, analysts aren't expecting much in the way of new policy from the Federal
Open Market Committee as it wraps up one of its eight annual meetings on Wednesday
afternoon.

"Given how much the Fed has already done, we are not expecting major innovations in Fed
policy this week," Lewis Alexander, chief U.S. economist at Nomura, wrote in a research note
on Wednesday. "However, we also expect the FOMC to indicate that they are prepared to
increase their asset purchases if that proves necessary to support their broader objectives."

Indeed, many analysts argue the Fed could still announce additional monetary policy support in
the weeks and months ahead. As recently as Monday, the central bank announced plans to
expand its purchases of municipal bonds to include some lower-population cities and counties.

But overall, central bankers have already brought out the big guns. There are still a few
monetary levers left to be pulled, but many expect the Fed to tweak existing programs rather
than roll out entirely new and unproven policies.

"Chiefly, the committee believes it still has ammunition to provide to the economy, but that it will
be more of what is already being done, rather than cracking the seal on untested methods like
negative rates," Curt Long, vice president of research and chief economist at the National
Association of Federally-Insured Credit Unions, said in a statement earlier this month.

The sheer number of announcements the Fed has made since the onset of the coronavirus
pandemic has been stunning. The central bank twice lowered interest rates last month outside
of any scheduled, official meetings. It also committed to a continuously broadening slew of asset
purchases that now includes municipal bonds and certain higher-risk assets that weren't on the
menu during the last time the central bank ran up its balance sheet during and in the aftermath
of the Great Recession.

The central bank has partnered with the Treasury Department and committed to loan programs
totaling hundreds of billions of dollars aimed at supporting large and mid-sized businesses.
Among other efforts, it has also relaxed monthly restrictions on consumer transactions with their
savings accounts. Whether those policies will help the country more quickly rebound from a
coronavirus-induced recession – and whether they are ultimately effective in staving off a future
financial crisis – remains to be seen.

"After a swift rollout of previously used and brand new policy tools, the Federal Reserve has
never in its 107-year history had the expansive toolkit it has at its disposal today," a team of
economists at Wells Fargo Securities wrote in a recent research note, commenting that "the
Federal Reserve probably could do more if it so chose" but suggesting the central bank is likely
to stand pat on major policy announcements until it gets more data.

Wells Fargo notes the Fed could delve further into supporting state and local governments and
the private-label mortgage market, for example, but that it's currently tough to say whether such
action would be warranted or immediately helpful. Given the sheer speed at which monetary
policy has evolved in recent weeks, some analysts note it may take time for the Fed's previously
announced efforts to make much of a difference.

"The Fed needs to concentrate on finalizing its recent unfathomably large and complicated
programs," John Vail, chief global strategist at Nikko Asset Management, said in a statement on
Tuesday. "The largest new ones have not even begun and actually may never need to buy
many assets because order is already restored due to their pending arrival."
The Fed's actions under Powell are not without criticism. Some have argued that the central
bank's commitment to do whatever it takes will lead to private sector instability and a greater
appetite for risky behavior, which could rattle financial markets down the road. Others have
been critical of some individual programs. The Fed's commitment to loan $500 billion to large
companies, for example, doesn't come with many strings or stipulations – at least compared to
the Small Business Administration's Paycheck Protection Program loans, which are forgivable
provided companies use the money to keep their employees on staff.

But the Fed has moved quickly, announcing many policy provisions before the depth of the
coronavirus outbreak's economic upheaval was truly realized. The delayed nature of economic
data, however, has made it tough for the central bank's team of experts to determine how
effective their efforts have been and what else is needed to keep the gears turning. The Fed's
asset purchases seem to have quelled financial markets, but analysts will watch Powell closely
on Wednesday in the hopes of gaining insights into where FOMC officials see the economy
headed through the rest of the year and beyond.

As swiftly as the Fed may have moved, however, the economy's deterioration has been even
more rapid. More than 26 million Americans filed initial ​unemployment​ claims in just a five-week
period, an unprecedented spike in joblessness that has at times left state unemployment offices
paralyzed by the influx of requests.

Given that so much economic data is backward-looking by one or more months, it wasn't until
Wednesday that the government confirmed that the U.S. economy ​contracted​ at a rate of 4.8%
during the first three months of this year. Analysts know the health of the U.S. economy is not in
a good place right now. But there's an inherent lag between current conditions and when those
conditions are confirmed through official data.

Powell has clarified in recent comments that the Fed has tried to set up policy to make the
country's eventual recovery as smooth as possible once the economy bottoms out, at times
directly or indirectly calling on lawmakers and President Donald Trump's administration to enact
more supportive fiscal policy to help Americans weather the greatest economic upheaval the
country has seen since the Great Depression. References to fiscal policy and to lawmakers on
Capitol Hill will also be closely scrutinized when Powell addresses reporters on Wednesday
afternoon.
"In many cases, what people really need is direct fiscal support rather than a loan. And what we
can do is loan," Powell said during a webinar hosted by the Brookings Institution earlier this
month. "So there's a big need for fiscal policy. I hear many voices on both sides of Capitol Hill
and in both parties talking now about further support. I do think that's likely to be appropriate."

https://www.usnews.com/news/economy/articles/2020-04-29/what-else-can
-the-federal-reserve-do-to-help-a-coronavirus-ravaged-economy