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Powell calls for more fiscal support as recovery enters ‘critical phase’

Yahoo Finance’s Brian Cheung joins Zack Guzman to discuss why Fed Chair Jerome Powell is urging Congress to consider more fiscal support amid the coronavirus.

Video Transcript

ZACK GUZMAN: Of course, today, though, all investors have their eyes on Fed Chair Jay Powell, yet again on the Hill testifying, this time from the House Financial Services Committee after he testified before the Senate Banking Committee yesterday. And again, still preaching caution and a lot of reasons as to why right now is a critical phase to keep fiscal stimulus top of mind, urging Congress to do more on that front. And for more on what he had to say, I want to get to Yahoo Finance's Fed reporter Brian Cheung with the latest. Brian?

BRIAN CHEUNG: Well, Zack, Federal Reserve chairs usually try to emphasize the firewall that exists between fiscal policymakers on Capitol Hill and monetary policymakers at the Federal Reserve. And in previous appearances, Fed Chairman Jay Powell would say that the Federal Reserve tries to stick to its knitting and not recommend what fiscal policymakers should do at any given point in time. But that tone has changed with regards to the COVID-19 recovery that the Federal Reserve is trying to engineer Chairman Powell saying that unemployment insurance and more support to small businesses could be needed. Here's what he said to the House Financial Services Committee just a few minutes ago.

JAY POWELL: I would think that it would be a concern if Congress were to pull back from the support that it's providing too quickly. I wouldn't presume to prescribe exactly what you should or should not do, but I would say that it would be wise to look at ways to continue to support both people who are out of work and also smaller businesses that may not have vast resources for a continued period of time-- not forever, but for a period of time so that we can get through this critical phase. This is-- the economy is just now beginning to recover. It's a critical phase, and I think that support would be well placed at this time.

BRIAN CHEUNG: There saying that Congress could do more. And keep in mind, the Federal Reserve stands ready to do more itself. Chairman Powell telling the Senate Banking Committee yesterday, in his first of two days of back-to-back appearances on Capitol Hill, that he could see the need for the Federal Reserve or-- and/or Congress to do more if the recovery looks like it might need a little bit of a boost.

Other things that could be in view as Chairman Powell continues to testify, which by the way, could go on as long as up until 3:00 PM Eastern time today, Chairman Powell could be pressed on things like the corporate bond purchases that it's embarked on, in addition to its ETF purchases and things like the Main Street Lending Program, which as we know, is that Main Street emergency loan program that the Federal Reserve hopes to have live soon. Zack?

ZACK GUZMAN: Yeah, and Brian, I mean, when you think about the pressure that Powell has been putting on Congress to do more on the fiscal side, that, again, has been a very-- a large theme that we've seen from his last few public appearances. But when we look at what else he's been saying, some other interesting headlines there, perhaps a shift in maybe the thinking around what more can be done on the monetary side when we think about negative rates.

He has long said that he does not think that dipping into negative territory would make sense. But this time couching it with the phrase at this time. Curious to get your take on what that might mean. I don't want to read too much into anything on that, but it has been something he's been pretty hesitant to address as a real policy tool thus far.

BRIAN CHEUNG: Well, good eye on the semantics there, Zack. Yes, even though negative interest rates appear to be off the table, it's off the table for right now. The Federal Reserve does not really like the get into the habit of eliminating itself from any policy opportunity in the future because who knows what they might need to do down the line. But for right now, Chairman Powell and basically the entire Federal Open Market Committee not seeing the need to take rates below zero.

But one thing that the Federal Reserve could do with regards to interest rate policy would be a policy like yield-curve control. This is something that was talked about in his press conference, or rather with his hearing yesterday in front of the Senate Banking Committee. He said that the Federal Reserve is thinking about possibly pinning down rates on medium-term US government debt, things like the three-year or the five-year, where the Fed would say we're going to increase purchases until bond yields on those securities go below a certain level.

The Federal Reserve says they have not decided on that. They said they-- that's something they can consider in future meetings. Chairman Powell alluded to that in that last FOMC press conference on June 10. So no announcement right now, but the Federal Reserve messaging very clearly, it has other tools that it could use that are not negative interest rates if they needed to.

ZACK GUZMAN: Yeah, and lastly, I guess, you know, part of the reason why this is a unique situation is because so much of this is tied back to forecasting what might happen on the health front. Of course, that's one thing that Chair Powell definitely doesn't know. It's things that people even in the House Financial Services Committee don't know. Nobody knows, really, at the time. So how hard is it, when you're thinking about which levers to pull here, how we might not know until we get closer to maybe some developments on the vaccine front and how Jay Powell is trying to couch his responses and seemingly keep doors open so far to the idea that we don't know what's going to happen later on in the year?

BRIAN CHEUNG: That is absolutely the tightrope that the Federal Reserve is walking right now. They're trying to create economic forecasts through something that is not an economic phenomenon. This virus is, first and foremost, a health emergency, and the Federal Reserve is not really in the business of having that, beyond maybe a nurse in the building, right? So when we talk about the predictions that Jay Powell and the rest of the Fed policymakers are trying to put together, their predictions are honestly no better than yours and mine when it comes to the path of the virus itself.

That's why Jay Powell was saying in his prepared remarks-- that's, you know, very available on the Federal Reserve website-- that really a full recovery is not going to be possible until there is public confidence in that recovery taking place from a health standpoint, that we can get over this virus and that people can resume normal activity without concern about getting sick and being hospitalized. That's a concern that we've seen played out as we see certain states open and cases of hospitalizations rises in the case of Texas.

This is something that the Federal Reserve is really going to grapple with. Right now, their baseline expectation is for a recovery in the second half of this year, which really begins in July, only in a few weeks. But if the virus is not contained, there's no reason why the Federal Reserve wouldn't change that forecast, maybe on the downside.

ZACK GUZMAN: All right, Brian Cheung bringing us the latest as Chair Powell continues to speak. We'll bring you updates as we get them but appreciate that first update to get us kicked off here.