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Former Fed chairs Yellen and Bernanke give Congress views on Covid 19 in response to the economic crisis

Former Fed chair’s testify on Covid 19 in response economic crisis

Former Fed chair’s Janet Yellen and Ben Bernanke are testifying to Covid 19 and response to economic crisis. There comments are appearing on the Brookings institute blog
  • in many respects this recession is unique
  • forecasting recovery is difficult
  • controlling the spread of the virus must be 1st priority for restoring more normal levels of economic activity
  • members of Congress, local leaders and other policymakers need to do all they can to support testing and contact tracing, medical research and sufficient hospital capacity.
  • They must work to ensure that businesses, schools and public transportation have what they need to operate safely
  • pace of recovery could be slow, uneven
  • the longer the recession last the greater the damage will reflect on household and business balance sheets
  • the depth of the recession may leave scars
  • depending on the course of the virus, some restructuring of the economy may be needed
  • Fed likely to give a for guidance on the lift off
  • the yield curve control possible, not certain
  • the financial system is in much better shape today than it was during the financial crisis
  • new same as measured by Congress are necessary including a comprehensive plan to support medical research, testing, contact tracing and hospital capacity, enhanced unemployment insurance should be extended, and Congress should provide substantial support to state and local governments
The full report can be found HERE

Highlights of the FOMC decision on December 11, 2019:

  • At the prior decision on October 30, the Fed cut rates 25 bps
  • The market has priced in virtually no chance of rate move through February
  • IOER 1.55% vs 1.55% prior
  • Fed drops language about ‘uncertainties about this outlook remain’
  • Vote was unanimous
  • “The Committee will continue to monitor the implications of incoming information for the economic outlook, including global developments and muted inflation pressures, as it assesses the appropriate path of the target range for the federal funds rate”
  • No changes in the economic outlook paragraph
  • Says “the current stance of monetary policy is appropriate”
  • Leaves forecasts for GDP and inflation unchanged, lowers unemployment
  • Median forecast is for one rate hike in 2021 and one in 2022

Dropping the language about uncertainties is moderately hawkish. However the market is basically unmoved in the aftermath. The Fed is clearly signaling that it’s on the sidelines here.

Fed lowers interest rates by 25 basis points, as expected

Highlights of the FOMC statement on September 18, 2019:

  • Fed funds target rate lowered to 1.75%-2.00%
  • Prior Fed funds rate was 2.00%-2.25%
  • IOER lowered to 1.80% vs 1.85% expected
  • IOER spread widened to 20 bps
  • Statement repeats that economic activity is rising at a moderate rate
  • Repeats the labor market remains strong
  • Repeats will act as appropriate to sustain expansion
  • Repeats inflation running below 2%
  • Bullard voted to lower rates more aggressively, George and Rosengren voted for no cuts
  • George and Rosengren dissented previously for no cuts
  • Says household spending been rising at a strong pace vs ‘has picked up from earlier in the year’ prior
  • Adds that exports have weakened
  • Business fixed investment ‘has weakened’ vs ‘has been soft’

There isn’t much of any kind of change in the statement. The market is focusing on the dot plot, which doesn’t show another cut this year and only an 9-8  preference for no cut at all next year.