MNI TEXT: Transcript of Fed Chair Powell's Opening Statement

By Greg Quinn

     WASHINGTON (MNI) - The Fed released a preliminary transcript of Chair

Jerome Powell's opening statement at a Sunday teleconference:

     Good evening, everyone. Today, the Federal Reserve took a number of actions

to support American families and business and the economy overall and to promote

the flow of credit as we weather disruptions caused by the coronavirus. The

virus is having a profound effect on people across the United States and around

the world. On behalf of my colleagues at the Federal Reserve, our first concern

is for those who have been harmed. Families, businesses, schools, organizations,

and governments at all levels are taking steps to protect people's health. These

measures, which are essential for containing the outbreak, will nonetheless

understandably take a toll on economic activity in the near term. While the

primary response to this challenge will come from our health care providers and

policy experts, economic policymakers must do what we can to ease hardship

caused by the disruptions to the economy and to support a swift return to normal

once they have passed. 

     The Federal Reserve's role is guided by our mandate from Congress to

promote maximum employment and stable prices for the American people, along with

our responsibilities to promote the stability of the financial system. Today, we

reduced the target range for our policy interest rate by 1 percentage point,

bringing it close to zero, and said that we expect to maintain the rate at this

level until we're confident that the economy has weathered recent events and is

on track to achieve our maximum employment and price stability goals. In

addition, we took other actions to support the flow of credit to households and

businesses.

     Before describing our actions more fully, I will share how my colleagues

and I currently view the economic outlook. The economy came into this

challenging period on a strong footing. The unemployment rate was 3.5 percent in

February and has been at or near half-century lows for almost two years. Job

gains have been running at a solid pace, well above what is needed to provide

jobs for new entrants into the labor market. Participation in the labor force by

people in their prime working years remained near its highest rate in more than

a decade. And wages have been rising, particularly for lower-paying jobs.

Overall economic activity has been expanding at a moderate rate, even though

weak growth abroad and trade developments have been weighing on some sectors.

U.S. banks are strong, have high levels of capital and liquidity, and are well

positioned to provide credit to households and businesses.

     Against this favorable backdrop, the virus presents significant economic

challenges. Like others, we expect that the illness and the measures now being

put in place to stem its spread will have a significant effect on economic

activity in the near term. Those in travel, tourism, and hospitality industries

are already seeing a sharp drop in business. In addition, the effects of the

outbreak are restraining economic activity in many foreign economies, which is

causing difficulties for U.S. industries that rely on global supply chains. The

weakness abroad will also weigh on our exports for a time. Moreover, the energy

sector has recently come under stress because of the large drop in global oil

prices. Inflation, which has continued to run below our symmetric 2 percent

objective, will likely be held down this year by the effects of the outbreak. 

     Financial conditions have also tightened markedly. The cost of credit has

risen for all but the strongest borrowers, and stock markets around the world

are down sharply. Moreover, the rapidly evolving situation has led to high

volatility in financial markets as everyone tries to assess the path ahead. In

the past week, several important financial markets, including the market for

U.S. Treasury securities, have at times shown signs of stress and impaired

liquidity. 

     The market for Treasury securities is a critical part of the foundation of

the global financial system. It is generally the most liquid of all markets, and

serves as the benchmark by which many other financial assets are valued. It

plays an important role in allowing households and firms to earn a safe return

and manage their risks. When stresses arise in the Treasury market, they can

reverberate through the entire financial system and the economy. To prevent this

from happening and to support the smooth functioning of the Treasury market, we

announced today that we will purchase at least $500 billion of Treasury

securities over coming months. Similar stresses have also emerged in the market

for agency mortgage-backed securities, which is closely linked to the Treasury

market and critically supports the ability of people to get a mortgage to buy a

house or refinance an existing mortgage. To improve the functioning of this

market and to ensure the effective transmission of monetary policy to borrowers

in the economy, we will also purchase at least $200 billion of agency mortgage

backed securities over coming months and immediately cease the runoff of these

securities in our portfolio. While the primary purpose of these securities

purchases is to restore smooth market functioning so that credit can continue to

flow, the purchases will also foster more accommodative financial conditions. 

     The Federal Reserve announced a number of other actions today to support

the flow of credit to households and businesses, thereby promoting our maximum

employment and price stability goals. Of these, I will highlight two. First, we

reduced the interest rate on discount window loans by 1-1/2 percentage points,

bringing that rate to 1/4 percent. The discount window plays an important role

in supporting liquidity and stability in the banking system, and we encourage

banks to turn to the discount window to help meet demands for credit from

households and businesses. To make the discount window more effective, we also

will offer discount window loans for periods up to 90 days. 

     Because of the importance of the U.S. dollar in the global economy, strains

in the markets for borrowing and lending dollars overseas can disrupt financial

conditions here in the United States. To guard against such disruptions, the

Federal Reserve maintains swap lines with five major central banks. When dollar

funding pressures emerge abroad, those central banks can contain the pressures

in their jurisdictions and prevent them from impeding the flow of credit here at

home. To address potential pressures in these markets during the current period

of elevated uncertainty, we made a coordinated announcement with the Bank of

Canada, the Bank of England, the Bank of Japan, the European Central Bank, and

the Swiss National Bank, to reduce the pricing on our dollar swap lines. In

addition, our central bank counterparts will begin offering dollars to

institutions in their jurisdictions for a term of 84 days, in addition to the

usual one-week operation. These longstanding arrangements carry no risk to the

Federal Reserve or to the American taxpayer. 

     I won't go into detail on the other actions we took today, but they

involved eliminating reserve requirements for banks and encouraging banks to

make use of intraday credit with the Federal Reserve and to use their capital

and liquidity buffers as they support lending to households and businesses. 

     The actions we have announced today will help American families and

businesses, and indeed, our entire economy weather this difficult period and

will foster a more vigorous return to normal once the disruptions from the

coronavirus abate. We will continue to closely monitor economic and financial

developments and their implications for the economic outlook. We are prepared to

use our full range of tools to support the flow of credit to households and

business, to help keep the economy strong, and to promote our maximum employment

and price stability goals.

     Finally, let me note that today's FOMC meeting today was in lieu of the

meeting scheduled for next Tuesday and Wednesday. Thank you, I will now take

your questions.

--MNI Ottawa Bureau; +1 613-314-9647; email: greg.quinn@marketnews.com

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