MNI POLCY: Bernanke, Yellen: Fed Could Add Funding For Lending

--Fed May Implement Yield-Curve Control

--Ex-Officials See Slow, Uneven Recovery

By Evan Ryser

     WASHINGTON (MNI) - The Fed could add a new funding for lending program with

the U.S. in a slow and uneven recovery, former Chairs Ben Bernanke and Janet

Yellen told lawmakers, on top of going further with QE, forward guidance and

yield curve control.

     "The Fed and Treasury may have to further ease terms for borrowers and

increase incentives for banks" for the Main Street program, the ex-officials

said on Friday. "Or, the Fed and Treasury could add a new facility, along the

lines of funding-for-lending programs run by the Bank of England and the

European Central Bank" they said in prepared testimony.

     The Fed began operation on its Main Street Lending Program in recent weeks

and saw limited take up over the last week for the first time to the tune of

USD12 million, according to data released Thursday.

     The Congressional hearing examined the government's economic recovery

efforts in response to the coronavirus crisis. It's the first time that Bernanke

or Yellen testified before Congress since stepping down from the Fed.

     The "Fed may well do more in coming months as re-opening proceeds and as

the outlook for inflation, jobs, and growth becomes somewhat clearer," they

said.

     --YIELD TARGET?

     The Fed will "likely" provide forward guidance tied to the economic

conditions it would need to see before it considers raising its overnight target

rate, they said, and the Fed likely will clarify its plans for QE.

     "It is possible, though not certain, that the FOMC will also implement

yield-curve control by targeting medium-term interest rates," they said.

     "It could, for example, target two-year rates by announcing its willingness

to buy two-year Treasury notes at a fixed yield" they said.

     The former Fed Chairs said "the pace of the recovery could be slow and

uneven" for a time. The depth of the recession may leave scars, with business

closures and the deterioration worker skills that affect growth for several

years.

     --MORE FISCAL ACTION

     "Fiscal and monetary policies must aim to speed the recovery and minimize

the recession's lasting effects," the former officials told lawmakers.

     "Some programs authorized by the Congress are ending, and new actions are

necessary," they said. "With interest rates extremely low and likely to remain

so for some time, we do not believe that concerns about the deficit and debt

should prevent the Congress from responding robustly to this emergency."

     "Broadly speaking, though, the Fed's response has been forceful,

forward-looking, and comprehensive," they said, adding a review is needed later

on why Fed programs failed to prevent some market breakdowns. 

--MNI Washington Bureau; +1 202 371 2121; email: evan.ryser@marketnews.com

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