Truly rare situation now, rebound can be robust: Fed Chair on US economy

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IANS | 09 Apr, 2020
Describing the current circumstances as rare, US Federal Reserve Chairman Jerome H. Powell on Thursday said that the economic rebound of the world's largest economy can be robust when the crisis is over.

He said that the Federal Reserve can contribute in the tough times by providing a measure of relief and stability during this period of constrained economic activity, and by using our tools to ensure that the eventual recovery is as vigorous as possible.

"To those ends, we have lowered interest rates to near zero in order to bring down borrowing costs. We have also committed to keeping rates at this low level until we are confident that the economy has weathered the storm and is on track to achieve our maximum-employment and price-stability goals," Powell said in his address on Thursday.

"Even more importantly, we have acted to safeguard financial markets in order to provide stability to the financial system and support the flow of credit in the economy."

He noted that the US central bank acted forcefully to get its financial markets working again, and, as a result, market conditions have generally improved.

The Fed Chairman said that it will continue to use its powers "forcefully, proactively, and aggressively" until it is confident that the economy is solidly on the road to recovery.

"I would stress that these are lending powers, not spending powers. The Fed is not authorised to grant money to particular beneficiaries. The Fed can only make secured loans to solvent entities with the expectation that the loans will be fully repaid. In the situation we face today, many borrowers will benefit from these programs, as will the overall economy."

But there will also be entities of various kinds that need direct fiscal support rather than a loan they would struggle to repay, Powell added.

"Our emergency measures are reserved for truly rare circumstances, such as those we face today. When the economy is well on its way back to recovery, and private markets and institutions are once again able to perform their vital functions of channeling credit and supporting economic growth, we will put these emergency tools away," he said.

He also said that when the spread of the virus is under control, businesses will reopen, and people will come back to work.

"There is every reason to believe that the economic rebound, when it comes, can be robust."

Powell said that the US entered the turbulent period on a strong economic footing, and that should help support the recovery.

In the meantime, he said that the US Fed is using its tools to help build a bridge from the solid economic foundation on which the country entered this crisis to a position of regained economic strength on the other side.