Don’t Overlook The Importance Of What The Federal Reserve Just Did. And Said.

Federal Reserve Chair Jerome Powell in an appearance (remotely) before the Brookings Institution

“The burdens are falling most heavily on those least able to carry them”, says Fed Chair Jerome Powell.

That on a day when reports show another 6.6-million Americans filed for unemployment benefits, meaning more than 17-million people in this country have lost their jobs in the last month.

The U.S. central bank taking several additional crucial steps to shore up the economy, to the tune of $2.3-trillion dollars:

  • It’s buying loans made by banks to small, big and medium-sized businesses. In a larger scale than it has thus far. And even for businesses that are too big to qualify for Small Business Administration relief.
  • It’s providing relief to state and local governments, which in many places are close to running out of cash, by setting up a fund worth half a trillion dollars that they can tap into to keep their day-to-day operations going. Many small governments are stretched extremely thin right now, and because the economy has come screeching to a halt, they’ve lost revenue from things like sales tax, which often make up a good chunk of their finances.

But the Fed Chief also points out he only has “lending powers, not spending powers”, so the onus for providing enough support to ensure a long-term recovery really does fall on Congress and the Treasury. This is not passing the buck. The Fed is contributing in we believe truly heroic ways that are unbelievably important to the future recovery of this country. And it’s already pushing its influence to the limit of what it’s supposed to do, and beyond what it’s ever done before, even in the previous Recession.

A lot of what the Fed’s doing, if it goes according to plan, will go unnoticed. Because much of it involves just trying to keep people and institutions running as normal as possible. As Fed Chairman Powell put it during a Q&A after his speech Thursday:

What we’ve been doing is looking for places that are very important to the real economy: things that really affect people’s lives and economic output, and where credit to those parts of the economy has broken down.”

And Powell kind of draws a distinction between “reopening the economy”, and “reopening the economy with confidence“. He suggests there is:

“Every reason to believe that the economic rebound, when it comes, can be robust.”

But warns the economy needs to be reopened in a “careful way” with the consultation of healthcare officials. Otherwise even deeper damage could ensue if there’s another sudden outbreak “and then we have to go back to square one.”

Two other things jump out at us in what Fed Chair Powell did and said Thursday that are really striking. And give us both optimism, and also reason to really stop and think:

• The Fed made it clear the entire U.S. banking system was truly on the precipice of something catastrophic just a few short weeks ago, when banks completely locked up when the Coronavirus crisis first hit. And that could’ve meant even more damage to the economy. Probably more than most of us even realize:

[S]ome essential financial markets had begun to sink into dysfunction, and many channels that households, businesses, and state and local governments rely on for credit had simply stopped working. We acted forcefully to get our markets working again, and, as a result, market conditions have generally improved.”

• The timeline of the Fed’s moves suggests that even if the economy starts rebounding sooner rather than later, it still might take years rather than months to partly or fully come back. That’s implicit in the structure of the loans it is funding for businesses employing up to 10,000 people: giving them 4-years to pay it back, with no principal and interest payments for the entire first year.

We understand you may be cynical about us cheering for the head of the most powerful central bank in the world. And you may judge us as naive when we assert government exists first and foremost to ensure the public good, and we truly believe its ability to do that has not totally been lost.

And you may even believe that’s what the President has in mind when he Tweets:

Once we OPEN UP OUR GREAT COUNTRY, and it will be sooner rather than later, the horror of the Invisible Enemy, except for those that sadly lost a family member or friend, must be quickly forgotten.”

That’s your right.

All the same, it strikes us, that past all the details about interest rates and finance mechanisms, and give-and-take with Congress and the Treasury, and trillions upon trillions of dollars, Fed Chair Powell returns again and again in his comments to helping people. And helping those the most who are hurting the most. (Maybe even if they’re not your “fans”, or don’t agree with your ideology. And we don’t mean to single out any politician or politicians when we say that. Really, we don’t.) Just that it’s easy to forget in these days of deep social and political divide.

As Powell puts it:

It is worth remembering that the measures we are taking to contain the virus represent an essential investment in our individual and collective health. As a society, we should do everything we can to provide relief to those who are suffering for the public good.”