THE FEDERAL RESERVE

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MARKETWATCH

"Fed balance sheet essentially steady at just under $7.2 trillion"


By Greg Robb

Published: June 11, 2020 at 5:04 p.m. ET

Assets on the Federal Reserve's balance sheet rose marginally to $7.169 trillion as of Wednesday, up from $7.165 trillion last week.

The assets have been hovering close to $7 trillion for the past month, but are over $3 trillion larger than they were one year ago.

Former New York Fed President William Dudley said the Fed's balance sheet might hit $10 trillion before the recession is over.

On Wednesday, the Fed announced it would continue purchases of Treasurys and agency mortgage-backed securities "at least at the current pace" of about $80 billion per month for Treasurys and about $40 billion per month for MBS.

The Fed says the purchases are aimed at supporting market functioning.

Economists also think the asset purchases are an open-ended form of quantitative easing, aimed at helping the economy while the Fed's interest-rate target is close to zero.


The Fed also has set up nine lending facilities to help the financial system, municipalities and companies.

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MARKETWATCH - The Fed

"Fed’s Barkin says best stimulus plan would be common standards so consumers feel safe to shop"


By Greg Robb

Published: June 12, 2020 at 3:49 p.m. ET

The best way to help the U.S. economy recover would be for business and government to develop “aggressive and consistent” workplace standards, so consumers and workers feel safe to leave home, said Richmond Fed President Thomas Barkin on Friday.

“Defining these standards, and ensuring they are broadly followed, is actually the most critical stimulus program we can do,” Barkin said during a town hall sponsored by Chamber RVA, a Richmond business group.


“It will require strong public/private coordination,” Barkin said.

He added as an aside that he was pleased with the way the Chamber RVA helped Richmond reopen.

Barkin’s comments reflect some unease at the Fed about how the economy is reopening with little coordination and rules being set in some instances county-by-county.

A second wave of the coronavirus “would not be a positive development,” Fed Chairman Jerome Powell said on Wednesday.


Even a series of local spikes could damage the economy because it would undermine people’s confidence, he said.

But the decision about when to reopen the economy is one for elected officials at the state and local level, Powell stressed.

Barkin, the Richmond Fed president, was not impressed by the May jobs report, saying the underlying data is worse than the headline 13.3% unemployment rate.

The “unemployment reality” is in the “high teens” and the job losses have fallen disproportionately on people of color, he said.


Second-quarter gross domestic product could come down in the range of about a 40% annual rate, Barkin said.

Still, assuming there is no significant resurgence in COVID-19, the economy should improve going forward, Barkin said.

“While hardly robust, you can see positive signals in the real-time information,” Barkin said.

Consumer sentiment has increased, credit-card spending is not down as much as earlier in the crisis, and auto dealers say demand is rebounding, he said.

Real disposable income could actually be positive in the April-June quarter, he said.

But the pace of growth will be slow.

He said the economy still needs stimulus “beyond what the Fed can deliver.”

Barkin said some large firms are telling him that they are planning layoffs because they are assuming the economy won’t recovery fully.

The debt burden might also slow the economy going forward, he said.

The Dow Jones Industrial Average lost most of its early gains Friday and was up 63 points in early afternoon trading.

Stocks had tumbled on Thursday after Powell said a day earlier that the economy faced a “long road” to full recovery.

Powell will get a chance to expand on his remarks in testimony to Congressional committees next Tuesday and Wednesday.

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MARKETWATCH - The Fed

"Fed’s Kaplan worries economy’s recovery may be slowed if coronavirus health practices remain ‘uneven’"


By Greg Robb

Published: June 14, 2020 at 1:03 p.m. ET

By Greg Robb

Dallas Fed President Robert Kaplan said Sunday that public health procedures to combat the coronavirus were just as important as government funding for the nascent economic recovery and that, to date, the efforts to reduce coronavirus infections have been “uneven.”

In an interview on CBS’s “Face the Nation,” Kaplan said experts tell him that it is “critical” that people “widely” wear masks and that there is good testing and contact tracing.

“The extent we do that well will determine how quickly we recover."

"We’ll grow faster if we do those things well,” Kaplan said.

“And right now, it’s relatively uneven.”

Fed officials say they are doing all they can to help the economy recover.

There is an undercurrent of concern in their comments over how efforts to stem the pandemic, normally outside the purview of central banking, are going.

On Friday, Richmond Fed President Thomas Barkin called on the government and business to develop a common set of standards so consumers feel safe shopping and eating at restaurants.


Texas is one state seeing rising coronavirus cases, especially in Austin and Houston.

Kaplan said that officials assumed there would be more coronavirus cases as part of the reopening.

“The thing we’re watching is — are there so many cases it is overwhelming the health-care system — and we’re not seeing that at all here,” he said.

The Dallas Fed president said the unemployment rate was on its way down.

“We’re going to get positive job growth in June, July from here,” he said.

However, even with the job growth, the jobless rate will finish the year at 8% or higher, he said.

Congressional spending “is going to be very important from here,” Kaplan said.

Asked if he meant Congress should spend more money, Kaplan said: “I am being careful as a central banker not to tell fiscal authorities what to do.”

The Dow Jones Industrial Average was down 1,505 points last week to 25,605.

Stocks fell sharply after Fed Chairman Jerome Powell gave a grim outlook for the economy.

Powell said there was a “long road” ahead for the economy to return to full employment and the outlook was uncertain.

He said millions of workers won’t get to go back to their old jobs.

The Fed chairman will get to revise and extend his remarks when he testifies to Congress on Tuesday and Wednesday.

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MARKETWATCH - The Fed

"Powell says Fed is not an ‘elephant’ running through the corporate bond market"


By Greg Robb

Published: June 16, 2020 at 12:57 p.m. ET

Federal Reserve Chairman Jerome Powell testified to the Senate on Tuesday, and maintained a cautious stance about the economy.

In his prepared remarks, Powell said the level of output and employment was well below pre-pandemic levels despite good news on retail sales and employment.


In his answers to Senators, Powell gently pressed Congress to do more to help the economy recover.

On the Fed’s asset purchases and lending programs, Powell said he didn’t see the central bank as an elephant running through the corporate bond market.

He also denied the central bank was monetizing U.S. debt.


Powell will talk to the House Financial Services panel on Wednesday.

Stocks were holding on to strong gains in early afternoon trading.

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MARKETWATCH - The Fed

"Powell says economic activity far below pre-pandemic levels despite ‘modest rebound’ in some areas"


By Greg Robb

Published: June 16, 2020 at 2:29 p.m. ET

Federal Reserve Chairman Jerome Powell on Tuesday suggested investors shouldn’t overreact to surprisingly good economic data like the May retail sales report.

In testimony prepared for the Senate Banking Committee, Powell acknowledged some economic indicators have pointed to a stabilization in activity and others have even suggested “a modest rebound.”

“That said, the levels of output and employment remain far below their pre-pandemic levels, and significant uncertainty remains about the timing and strength of the recovery,” Powell said.

The Fed chairman said until the coronavirus disease is contained, a full recovery is unlikely.

U.S. equity indexes jumped on Tuesday in part after the government reported retail sales surged a record 17.7% in May.

But the level of sales remains below February’s pre-pandemic level.

The U.S. regained 2.5 million jobs in May and the unemployment rate fell to 13.3%, confounding Wall Street expectations for another big wave of layoffs.

Stocks had fallen last week with some analysts blaming Powell for a grim outlook at his press conference.

The Fed announced last week that it would keep buying Treasurys and agency-backed mortgage securities.

The central bank’s balance sheet has swelled by $3 trillion since early March, mainly from these purchases.

The Fed has also set up 11 lending programs to get credit flowing in all corners of the financial markets, including corporate bonds.

When a few Senators expressed concern with the Fed’s asset purchases, Powell tried to mollify them.

Sen Pat Toomey, a Republican of Pennsylvania, said the Fed’s corporate bond purchases were unnecessary and were distorting market signals.

“I don’t see us as wanting to run through the bond market like an elephant...snuffing out price signals and things like that,” Powell said.

“We just want to be there if things turn bad for the economy,” he added.

Later, Powell said the central bank wasn’t buying asset to make it easier for the U.S. Treasury Department to sell the increased debt.

This is known as “monetizing the debt.”


“That is certainly not our intention,” Powell replied.

The Fed’s asset purchases were needed because financial markets stopped working when investors all decided to move to cash.

“It wasn’t in any way about meeting Treasurys supply."

"We really don’t think of that,” he said, adding there is a lot of demand for Treasurys.

Economists think the indicators could show a strong rebound in May and June but then the economy might falter.

“The early part(s) of this recovery are going to be in a way easy because they are coming off such low levels,” and this might last through July, said Mike Feroli, chief U.S. economist at J.P. Morgan Chase.

“After that, the story gets a little more interesting,” Feroli added.

In his testimony, Powell said he thought the economy would go through three stages.

The first stage was the shutdown with a sharp drop in activity and that may end at the end of June.

The second part will be the “bounceback” with people going back to work.

“We’re seeing apparently the beginning of that,” Powell said.

The third stage will be the economy “well short” of the pre-pandemic level in February.

“Much of that economic uncertainty comes from the uncertainty about the path of the disease and the effects of measures to contain it,” Powell said.

He said the Fed was committed to using its full range of tools to assure the recovery from the recession will be as robust as possible.

Powell did not say Congress needed to pass another emergency funding package to help the economy but he gently pushed lawmakers, saying more spending “can make a critical difference not just in helping families and businesses in a time of need, but also in limiting long-lasting damage to our economy.”

Several Democrats pressed Powell on the issue of inequality.

Asked if the Fed was responsible for unequal outcomes for black people, Powell said everyone could do more.

The central bank would be looking for ways to do just that, he added.

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MARKETWATCH - The Fed

"Fed’s Mester sees ‘long road back’ for economy"


By Greg Robb

Published: June 17, 2020 at 6:14 p.m. ET

The economy will take a long time to recover and the Federal Reserve will have to maintain very easy monetary policy into 2023 to assist the healing process, said Cleveland Fed President Loretta Mester on Wednesday.

“My view is, given what I know, and given what I’ve seen, and given when you talk to business contacts, this is going to be a long road back,” Mester told reporters after a virtual speech.

And because of that outook, Mester said she thought the Fed “is going to need to have a very accommodative monetary policy for quite some time.”

Surprisingly good news on job growth and retail sales has sparked some talk of a stronger-than-expected recovery.

But Mester said the gains were deceiving as they came off low levels in March and April.

A more optimistic scenario could be built, but it would be based on the development of a vaccine for the coronavirus so that people feel comfortable re-engaging, she said.

“That doesn’t seem to be one you can put a lot of weight on.”

In her speech to the Council for Economic Education in New York, Mester said her forecast was very similar to the median forecast of FOMC participants that was released last week, which showed most Fed officials think it will be appropriate for the central bank to keep its benchmark federal funds rate close to zero through 2022, the end of the projection horizon.

At the moment, Mester said she thinks the economy will improve after the end of this month.

“But after that, I believe it will take quite some time for economic activity and job levels to approach more normal levels,” she said.

Mester is a voting member of the Fed’s interest-rate setting committee this year.

“The shape of the recovery will depend on the path of the virus and our ability to handle its spread through testing, contact tracing, treatment and risk-focused restrictions on activity."

"It will also depend on the behavior of households and businesses and how comfortable they feel in re-engaging in economic activity,” Mester said.

A survey by the Cleveland Fed found a profound split among households about how they plan to behave in the pandemic.

About 60% of respondents think the pandemic will last a year or less and they are likely to return to restaurants and other crowded attractions.

The remaining 40% say they think the pandemic will last more than a year and said they won’t return to public activities even after it has ended.

Mester said she thought that the crisis would push inflation lower this year before it moves back up.

“I think it behooves us to make sure we do what we can to make sure that inflation moves in the right direction, not in the wrong direction,” she said.

That’s yet another reason to keep rates low for longer, she said.

U.S. stocks were mixed on Thursday, with the Dow Jones Industrial Average and the S&P 500 index closing lower, while the Nasdaq gained.

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FEDERAL RESERVE

The Adaptability of Stress Testing


Vice Chair for Supervision Randal K. Quarles

At Women in Housing and Finance, Washington, D.C.

June 19, 2020

Thank you for the opportunity to again address this group, which has played such an important role encouraging diversity, and a diversity of perspectives, in housing and finance.

I gave my first speech to Women in Housing and Finance almost 30 years ago.

You've been kind enough to invite me back in each of my tours of duty in public service since then, and throughout that time you have been an exemplar of the adage that diversity is the art of thinking independently together.

Today, I'd like to talk to you about how banking regulation and supervision is adjusting to the unprecedented economic challenges posed by the coronavirus outbreak and especially the containment measures taken in response, which together we call the "COVID event."

In particular, I will discuss how the COVID event is affecting a cornerstone of the Federal Reserve's oversight of large banks — our periodic stress tests, which verify that banks are prepared to deal with severe economic and financial conditions.

Although our stress tests were not designed to test specifically against the effects of the COVID event on the economy and on our banks, they were designed to be flexible.

I will describe modifications we've made to the stress test process this year, including expansions in stress testing appropriate to the unique circumstances we face, and preview our approach to the results the Fed will release next week.

Let me start with some more general background on stress tests, among other steps the Federal Reserve Board has taken since the 2007-2009 financial crisis to strengthen the financial system and increase its resiliency.

Since the financial crisis, we have mandated a substantial increase in the quantity and quality of capital in the banking system, including specially targeted higher capital requirements for the largest banks critical to overall financial stability.

Capital provides a cushion to ensure that banks are prepared to face financial stress and other unexpected circumstances.

Our requirements include capital buffers that are designed to be drawn down in periods of stress, in addition to minimum capital requirements.

We have also established periodic stress tests to examine how banks would respond to hypothetical adverse financial and economic conditions.

The Fed took these steps so that, during a crisis, banks would be in a position of strength and would not be forced to curtail lending to preserve capital, which would only worsen the crisis.

In early March, in a move unrelated to the COVID event, the Board simplified its capital rules by finalizing a stress capital buffer requirement.

This new framework uses our stress tests to set capital requirements for large banks and has the same goal as the previous framework: using forward-looking analysis to help ensure that banks have sufficient capital to survive a severe recession while still being able to lend to households and businesses.1

This year, as every year, the stress test began in February with the publication of a hypothetical scenario.

This scenario, however, predated the serious economic effects of the COVID event, which began in March.

This timing presented challenges and demanded changes to our usual process, and we responded with an approach that required more extensive analysis than normal.

We simply would not have been doing our jobs if we had just run the test using a scenario framed before the economy began to deteriorate in March.

One reason for changing course hearkens back to the first stress test in 2009, the Supervisory Capital Assessment Program, or SCAP.

Like this year's test, SCAP was conducted in the midst of a crisis.

One goal was to provide information, transparency and market discipline.

But another goal was to restore and maintain public confidence in the financial system.

In that sense, ever since then stress testing has acted to stabilize and strengthen the financial system, and it is this ongoing benefit that would be put at risk if we failed to alter our approach to make it relevant to the unique circumstances we face.

While the first test likewise was conducted during a crisis, the current situation is unlike what we have faced in subsequent stress tests.

In normal circumstances, we can take our time to carefully examine data and make a deliberate judgement about the capital planning of banks.

This time, we have had to act much more quickly to be timely and relevant.

That necessarily means a different approach.

We didn't have the time or the comprehensive data to run a complete and updated COVID event stress test.

Normally, we publish our scenarios, which serve as the hypothetical basis for the test, two months before the start of the process, and we take two months to run the test.

We use data that banks submit around six weeks after the end of each quarter, so the test we run beginning in April normally uses data submitted in February and March reflecting bank balance sheets as of December.

We also normally ask banks to complete their own stress tests using our scenarios before we begin our stress test.

Another consideration was preserving the forward-looking benefits of stress tests.

As we weighed how to proceed on this year's stress testing process, it was clear that the starting point was a lot less important than the considerable uncertainty we continue to face about the course of the COVID event and thus the path of the recovery.

For that reason, we decided to stick with the February 2020 severely adverse scenario as the starting point for a different approach.

We are calling this forward-looking approach a sensitivity analysis, and now I'll try to explain how that differs from a focus on just one severely adverse scenario.

Based on past experience and our standing policies, our February scenario assumed stress in corporate debt and real estate markets, among other details, and an increase in unemployment considerably larger than occurred in the Great Recession.

Compared to what we are now experiencing, this scenario was less severe than the unprecedented drop in employment and output in the second quarter of 2020 but more severe than the extent of stress we're seeing in debt markets.

It also didn't include the unprecedented extent of fiscal stimulus.

But the larger issue is the unprecedented uncertainty about the course of the COVID event and the economy.

The range of plausible forecasts is high and continues to shift.

We don't know about the pace of reopening, how consumers will behave, or the prospects for a new round of containment.

There's probably never been more uncertainty about the economic outlook.

Although our policies on stress testing emphasize the value of not increasing capital requirements under stress and thus exacerbating a downturn, our first priority must be — and is — to understand the implications of quite plausible downside scenarios from our current position for bank capital.

In light of that uncertainty, our sensitivity analysis considers three distinct downside risk paths for the economy:

• first, a rapid V-shaped recovery that regains much of the output and employment lost by the end of this year;

• second, a slower, more U-shaped recovery in which only a small share of lost output and employment is regained in 2020;

• and third, a W-shaped double dip recession with a short-lived recovery followed by a severe drop in activity later this year due to a second wave of containment measures.

Let me emphasize that these are not forecasts by the Fed or me, only plausible scenarios that span the range of where many private forecasters think the economy could be headed.

While using the same models as our regular stress tests, our sensitivity analysis is different from our normal use of a severely adverse scenario in several ways.

First, there are three possible paths instead of one because we must consider this range of outcomes.

While we retained the basic structure of the February 2020 scenario, we swapped out a few key variables such as the unemployment rate, change in economic output, and Treasury bill rates.

We also didn't follow our scenario design policy statement in formulating these three alternative paths.

We chose rough approximations of economic paths rather than detailed scenarios, which means that the usual set of detailed variable data that we use will not be available.

Finally, the analysis is still based on year-end 2019 data but with targeted adjustments to account for the most material changes to banks' balance sheets in the first quarter related to the COVID event, such as sizeable credit-line drawdowns by corporations.

Given the changing economic circumstances and the need to act quickly, we didn't publish these three economic paths in advance and ask banks to model their exposures to them.

The targeted adjustments to banks' balance sheets include the substantial growth in corporate loan balances and stress on borrowers in certain industry sectors that are most exposed to a sharp drop in demand.

Although we didn't run our full stress test on these three possible downside risk paths for the economy, and while our adjustments only capture the most material changes in balance sheets since last year, this sensitivity analysis has helped sharpen our understanding of how banks may fare in the wide range of possible outcomes.

We think it makes the most sense to share with the public some of what we have learned when we publish the results of our stress testing process on Thursday of next week.

Let me lay out what that announcement will entail.

First, as a point of reference, we will disclose stress test results using the February 2020 scenario, run against bank exposures as of December 2019.

As in past years, this will include both firm-specific and aggregate results.

To be more precise, this portion of our disclosure, based on the results of the February 2020 scenario, will be identical in all material ways to last year's stress test disclosure.

This approach provides continuity and comparability with past stress tests.

For the sensitivity analysis, we will provide key details about the three downside risk paths for the economy and targeted adjustments.

We will also provide results aggregated across banks that will compare how the banking system as a whole would fare under the three distinct views of the future.

Because of the limitations I described in examining the three downside risk paths for the economy, our disclosure of the sensitivity analysis will not provide firm-specific results.

This adapted stress test, based on December 2019 exposures, will still give detailed information about the vulnerabilities of firms to the range of stresses that may play out.

As a next step, we plan to move ahead and provide all banks subject to stress testing with a stress capital buffer requirement based on the February 2020 scenario, under our new approach integrating stress testing with capital requirements.

Our new framework for establishing capital requirements was calibrated based on the assumption that we would set these requirements using a full stress test based on published scenarios.

Indeed, the overall severity of the February scenario and our V-shaped sensitivity analysis are roughly the same.

And, as I noted earlier, we kept in mind the principle that if possible we should avoid measures that tighten minimum capital levels during a crisis, to avoid intensifying that crisis.

Should our assessment of the COVID event's likely evolution change, of course, we will act expeditiously to resize the buffer or take other appropriate actions.

Let me take a minute to explain how and when we will disclose those stress capital buffer requirements.

In prior years, the results from Dodd-Frank Act stress tests and the related Comprehensive Capital Analysis and Review were released over a two-week period.

But in a change, we will be releasing the results from both exercises at the same time.

We are able to do this because the new capital framework uses the results of the stress tests to establish the size of banks' stress capital buffers, which they can draw down in times of stress, and allows the banks to adjust their capital plans after receiving those results.

By giving the firms their effective capital buffer requirement for the coming year and allowing them to adjust their capital plans to that buffer, the change will result in a more thoughtful assessment of risks.

Once the banks have determined their final capital plans, the Board will publicly release the final capital requirements for each individual firm later this year, before they take effect in the fourth quarter, as planned.2

In addition, given the special circumstances this year we will use the results of our sensitivity analysis to inform our overall stance on capital distributions and in ongoing bank supervision.

The sensitivity analysis will help us judge whether banks would have enough capital if economic and financial conditions were to worsen.

As I have noted, our largest banks entered the COVID event in a position of strength, with high levels of capital and liquidity, and they have demonstrated that strength in the support they have provided to the economy during a crisis.

In addition, I will note that almost all of our large banks have suspended share repurchases for the second quarter.

In light of the ongoing economic uncertainty, I consider this move for the second quarter a prudent step as a very substantial capital conservation measure.

Before the COVID event over 70 percent of the capital distributions of global systemically important banks, for example, came in form of share repurchases, which ceased in March.

The sensitivity analysis will help the Board assess whether additional measures are advisable for certain banks or certain future developments.

Let me conclude by reiterating that stress tests remain a valuable tool, even in this time of extreme uncertainty.

Our use of the sensitivity analysis is an acknowledgement that the path ahead is unusually uncertain, but that the work of verifying the resiliency of banks must continue, to aid the recovery by bolstering public confidence in the financial system.

The new stress capital buffer framework will likewise aid capital planning and risk management by banks, leaving them better prepared to maintain lending to households and businesses.

We will closely monitor the condition of these banks and the broader financial system in the coming months, including through additional COVID-related analysis.

We will not hesitate to take additional policy actions should they be warranted under the then-prevailing economic conditions.

Thank you, and I am happy to respond to your questions.

1. Board of Governors of the Federal Reserve System, Supervision and Regulation Report (PDF) (Washington: Board of Governors, May 2020).

2. Some banks may determine that they are required, for purposes of compliance with the securities laws, to publicly disclose their stress capital buffer requirement before the Board publicly releases this information later in the year. In order to give all banks subject to this year's exercise sufficient time to understand their stress test results and make any necessary changes to their capital plans, we expect banks to wait until after U.S. markets close on June 29, 2020, to publicly disclose any information about their planned capital actions and stress capital buffer requirements. Doing so will provide for a more orderly dissemination of information to the public.

Last Update: June 19, 2020

Board of Governors of the Federal Reserve System

20th Street and Constitution Avenue N.W., Washington, DC 20551

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MARKETWATCH - The Fed

"Fed’s Rosengren expects economic rebound this year ‘to be less than was hoped for’"


By Greg Robb

Published: June 19, 2020 at 10:15 a.m. ET

The U.S. economy is not likely to have a fast recovery and more support will likely be needed from the Federal Reserve and Congress, a top U.S. central banker said Friday.

“Unemployment remains very high, and because of the continued community spread of the disease and the acceleration of new cases in many states, I expect the economic rebound in the second half of the year to be less than was hoped for at the outset of the pandemic,” said Boston Fed President Eric Rosengren, in remarks to the Providence Chamber of Commerce made virtually.


Despite important policy actions taken so far, “I believe more support is likely to be needed from both monetary and fiscal policy,” he added.

Underneath the surprisingly good May jobs report is a “badly disrupted” U.S. labor market, he said.

The median forecast from Fed officials, released last week, projected a 6.5% decline in real gross domestic product this year and an unemployment rate of 9.3%.

“Unfortunately, I believe even this dire outlook may be too optimistic,” he said.

Rosengren said he expected the unemployment rate to still be in the double-digits at the end of the year.

The Boston Fed president is clearly troubled by the recent spike of coronavirus cases in the South and Southwest.

“So far, in the United States, efforts to contain the virus have not been particularly successful,” he noted.


Many Fed officials share this concern.

Dallas Fed President Robert Kaplan called efforts to battle the coronavirus “uneven.”

This lack of containment could lead to the need for longer shut-downs, resulting in higher unemployment.

“If there are significant flare-ups in states that have aggressively reopened, the reduction in social distancing that contributes to stronger economic performance in such states now may translate to more depressed economic activity and increased public health issues in those states in the future,” he said.

“I see a substantial risk in reopening too fast and relaxing social distancing too much,” he said.

But even if it turns out the response to the pandemic has been calibrated appropriately, additional highly stimulative monetary policy will be needed, he said

U.S. stocks opened higher on Friday with the S&P 500 index and the Dow Jones Industrial Average both rising over 1%.

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MARKETWATCH - The Fed

"Fed’s Clarida says he doesn’t see any asset bubbles resulting from recent policy response to pandemic"


By Greg Robb

Published: June 19, 2020 at 4:00 p.m. ET

The number 2 official at the U.S. central bank said Friday that he doesn’t see signs of inflation in asset values in financial markets.

Asked in an interview on the Fox Business Network if he saw unintended consequences or new bubbles stemming from the massive Federal Reserve policy response to the coronavirus pandemic, Fed Vice Chariman Richard Clarida replied: “I certainly don’t.”


Earlier this week, Jeremy Grantham, a stock market legend, said the equity market was currently the “real McCoy” of bubbles.

Clarida said it was premature to talk about the Fed reversing course on its monetary policy.

He said the Fed’s $2 trillion in asset purchases and 11 lending facilities were designed only to get credit flowing in the economy.

“We think its working,” Clarida said.

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MARKETWATCH - The Fed

"Fed’s Bullard doesn’t see signs a damaging asset bubble is forming"


By Greg Robb

Published: June 23, 2020 at 12:19 p.m. ET

Companies are taking on debt so they can stay in business until the coronavirus pandemic ends but this isn’t a precursor for a dangerous asset bubble forming, said St. Louis Fed President James Bullard on Tuesday.

“Bubbles are always an issue, and I do keep my eye on it, but I am just not seeing things that are on the same magnitude as what happened in the late 1990s, the so-called dot com bubble that blew up on us and then the much more serious housing bubble in the mid-2000s,” Bullard said, in an interview on Bloomberg TV.


He said that firms were taking on debt to make sure they can “survive and thrive” in a time of low revenue.

“So far so good, but we will certainly watch this closely,” he said.

Bullard said the Fed’s bond-buying wasn’t undermining capitalism by protecting zombie firms.

Firms that were viable before the coronavirus are figuring out how to run their businesses in ways to keep everyone healthy, he said.

The pandemic was throwing a curve ball to a few businesses, but “most” firms will be up and running after July, he said.

There is constant market chatter about bubbles forming as the Fed has cut its benchmark interest rate to near zero and purchased more than $2 trillion in U.S. Treasury debt and agency mortgage backed securities to repair damaged financial markets.

Bullard was skeptical of using a new tool called “yield curve control” under which the Fed would peg yields on longer duration securities.

“I think there are a lot more questions than answers around yield curve control right now,” he said.

One of the main concerns is that yield curve control “ended in tears” after it was used in World War II, he noted.

Fed officials wanted to end the controls after the war but the Truman administration, fearing inflation, resisted until 1951.


Bullard suggested yield curve control is not a front-burner issue as the market and Fed are on the same page about the outlook for low interest rates.

The Fed’s dot-plot of projected interest rates released earlier this month showed officials expect rates to stay near zero until 2023.

“I don’t really think this is a pending thing for the committee,” Bullard said.

The Fed has credibility because it kept interest rates close to zero from the end of 2008 until 2015.

The Fed’s 2% inflation target is also credible to the markets, Bullard said, and this will keep inflation relatively close to the target in this recession.

Stocks were higher on Tuesday with the S&P 500 index up almost 1%.

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