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| Whatever It Takes: How the Fed Aims to Rescue the Economy | Whatever It Takes: How the Fed Aims to Rescue the Economy |
| (about 16 hours later) | |
| The Federal Reserve on Monday pledged to do, in essence, whatever it takes to keep the economy from collapsing under the weight of the coronavirus pandemic. | The Federal Reserve on Monday pledged to do, in essence, whatever it takes to keep the economy from collapsing under the weight of the coronavirus pandemic. |
| The Fed’s announcement had lots of bureaucratic jargon and an alphabet soup of acronyms. But at its core, the central bank was making a simple promise, summed up in the first sentence of its news release: The Fed is “committed to using its full range of tools to support households, businesses and the U.S. economy overall.” | The Fed’s announcement had lots of bureaucratic jargon and an alphabet soup of acronyms. But at its core, the central bank was making a simple promise, summed up in the first sentence of its news release: The Fed is “committed to using its full range of tools to support households, businesses and the U.S. economy overall.” |
| Here’s a guide to understanding the Fed’s actions. | Here’s a guide to understanding the Fed’s actions. |
| Most of what the central bank announced on Monday falls under the broad category of “buying debt.” The Fed was already buying vast quantities of Treasury bonds — debt issued by the federal government — and mortgage debt backed by government agencies like Fannie Mae and Freddie Mac. On Monday, it went further, promising to keep buying “in the amounts needed to support smooth market functioning.” It also expanded programs that will support debt issued by companies, state and local governments, and other entities (though it won’t buy municipal debt directly). | Most of what the central bank announced on Monday falls under the broad category of “buying debt.” The Fed was already buying vast quantities of Treasury bonds — debt issued by the federal government — and mortgage debt backed by government agencies like Fannie Mae and Freddie Mac. On Monday, it went further, promising to keep buying “in the amounts needed to support smooth market functioning.” It also expanded programs that will support debt issued by companies, state and local governments, and other entities (though it won’t buy municipal debt directly). |
| The Fed’s actions won’t prevent thousands — perhaps millions — of businesses from shutting down, and almost certainly won’t prevent a recession. But they might limit the damage and allow for a faster recovery. | The Fed’s actions won’t prevent thousands — perhaps millions — of businesses from shutting down, and almost certainly won’t prevent a recession. But they might limit the damage and allow for a faster recovery. |
| “You can’t prevent some of the losses that are occurring,” said Nellie Liang, a senior fellow at the Brookings Institution and a former director of financial stability for the Fed. “You want to make sure that at the end of the period where the economy is affected by this crisis and shut down, that you haven’t left everyone in such a bad place that you can’t recover quickly.” | “You can’t prevent some of the losses that are occurring,” said Nellie Liang, a senior fellow at the Brookings Institution and a former director of financial stability for the Fed. “You want to make sure that at the end of the period where the economy is affected by this crisis and shut down, that you haven’t left everyone in such a bad place that you can’t recover quickly.” |
| The basic problem the Fed is trying to solve is that financial markets — particularly the bond market, where investors trade government and corporate debt — have nearly frozen up in recent days. Since no one is sure how bad the pandemic will be or how long it will last, investors are wary of buying any bonds, even ones that would normally be seen as safe havens. By promising to buy debt, the Fed is trying to get markets working again. | The basic problem the Fed is trying to solve is that financial markets — particularly the bond market, where investors trade government and corporate debt — have nearly frozen up in recent days. Since no one is sure how bad the pandemic will be or how long it will last, investors are wary of buying any bonds, even ones that would normally be seen as safe havens. By promising to buy debt, the Fed is trying to get markets working again. |
| Broadly speaking, American businesses right now fall into two groups. In the first category are companies, like airlines, hotel chains and cruise ship operators, that have seen their revenue more or less wiped out by the pandemic. Congress might step in to bail some of those companies out, but there isn’t much that the Fed can do for them. | Broadly speaking, American businesses right now fall into two groups. In the first category are companies, like airlines, hotel chains and cruise ship operators, that have seen their revenue more or less wiped out by the pandemic. Congress might step in to bail some of those companies out, but there isn’t much that the Fed can do for them. |
| Instead, the Fed’s actions are focused on the second set of businesses. These are companies that are basically healthy but in danger because of the freeze-up in financial markets. Some have been insulated from the outbreak’s effects but rely on debt as part of their normal operations. Others have lost business because of the virus but could survive if they could borrow to cover their expenses. | Instead, the Fed’s actions are focused on the second set of businesses. These are companies that are basically healthy but in danger because of the freeze-up in financial markets. Some have been insulated from the outbreak’s effects but rely on debt as part of their normal operations. Others have lost business because of the virus but could survive if they could borrow to cover their expenses. |
| If those businesses start to fail, there will be more layoffs and still more business failures — an economic nose-dive that could be harder to pull out of. The Fed is trying to contain the damage and prevent that cascade effect. | If those businesses start to fail, there will be more layoffs and still more business failures — an economic nose-dive that could be harder to pull out of. The Fed is trying to contain the damage and prevent that cascade effect. |
| “If these big corporations don’t have financing or they’re losing their access to credit, it means they’re going to have to close their doors and fire workers, and that multiplies into the real economy quickly and severely,” said Michelle Meyer, chief U.S. economist for Bank of America Merrill Lynch. If that happens, she said, “this economic recession spirals and becomes deeper and much more prolonged.” | “If these big corporations don’t have financing or they’re losing their access to credit, it means they’re going to have to close their doors and fire workers, and that multiplies into the real economy quickly and severely,” said Michelle Meyer, chief U.S. economist for Bank of America Merrill Lynch. If that happens, she said, “this economic recession spirals and becomes deeper and much more prolonged.” |
| Ordinarily, the Fed fights an economic slowdown by lowering interest rates. That encourages businesses and individuals to borrow, which encourages spending and investment. | Ordinarily, the Fed fights an economic slowdown by lowering interest rates. That encourages businesses and individuals to borrow, which encourages spending and investment. |
| Last week, the Fed cut its benchmark interest rate to nearly zero. But ultralow interest rates don’t do any good if no one will lend money, or if lenders demand a huge premium. That’s what was starting to happen in recent days. | Last week, the Fed cut its benchmark interest rate to nearly zero. But ultralow interest rates don’t do any good if no one will lend money, or if lenders demand a huge premium. That’s what was starting to happen in recent days. |
| “It was getting to a critical point,” said Julia Coronado, president of MacroPolicy Perspectives, an economic consultancy. “If corporations can’t get cash and mortgage markets aren’t functioning, your low rates don’t translate to households and businesses.” | “It was getting to a critical point,” said Julia Coronado, president of MacroPolicy Perspectives, an economic consultancy. “If corporations can’t get cash and mortgage markets aren’t functioning, your low rates don’t translate to households and businesses.” |
| By buying up government bonds and other safe assets, the Fed is trying to give investors sufficient confidence to put their money back into the bond market, which in turn should allow its interest-rate policies to work as intended. | By buying up government bonds and other safe assets, the Fed is trying to give investors sufficient confidence to put their money back into the bond market, which in turn should allow its interest-rate policies to work as intended. |
| A lot of what the Fed is doing under Jerome H. Powell, its chair, is taken from the 2008-9 playbook of his predecessor Ben S. Bernanke. The Fed bought Treasury notes and mortgage bonds then, as it is doing now, though in the past it has always put a dollar figure on its bond-buying programs — it took the extreme uncertainty of the current moment for the Fed to pledge open-ended stimulus. The central bank is also reviving several other programs that made their debut during the last crisis. | A lot of what the Fed is doing under Jerome H. Powell, its chair, is taken from the 2008-9 playbook of his predecessor Ben S. Bernanke. The Fed bought Treasury notes and mortgage bonds then, as it is doing now, though in the past it has always put a dollar figure on its bond-buying programs — it took the extreme uncertainty of the current moment for the Fed to pledge open-ended stimulus. The central bank is also reviving several other programs that made their debut during the last crisis. |
| But policymakers are also taking some novel steps. Most important, the Fed will effectively lend money directly to large corporations, something it has never done before. The central bank framed the program as “bridge financing” to help otherwise healthy companies keep their doors open and their workers employed during a period of disruption. | But policymakers are also taking some novel steps. Most important, the Fed will effectively lend money directly to large corporations, something it has never done before. The central bank framed the program as “bridge financing” to help otherwise healthy companies keep their doors open and their workers employed during a period of disruption. |
| Not everyone thinks that is a good idea. Narayana Kocherlakota, a former president of the Federal Reserve Bank of Minneapolis, said that it made sense for the Fed to buy bonds to keep financial markets flowing smoothly, but that lending money directly to companies was the job of Congress. | Not everyone thinks that is a good idea. Narayana Kocherlakota, a former president of the Federal Reserve Bank of Minneapolis, said that it made sense for the Fed to buy bonds to keep financial markets flowing smoothly, but that lending money directly to companies was the job of Congress. |
| “The way to deal with risk problems for corporations is for Congress to deal with it, not for the Fed,” Mr. Kocherlakota said. | “The way to deal with risk problems for corporations is for Congress to deal with it, not for the Fed,” Mr. Kocherlakota said. |
| Sales have abruptly dried up for restaurants, bars, independent retailers and other small businesses, and few have the savings to survive more than a few weeks without revenue. Moreover, small businesses can’t sell stock or issue debt to raise the cash to keep going. | Sales have abruptly dried up for restaurants, bars, independent retailers and other small businesses, and few have the savings to survive more than a few weeks without revenue. Moreover, small businesses can’t sell stock or issue debt to raise the cash to keep going. |
| Economists argue that in the long run, the Fed’s moves to cut interest rates and stimulate the economy should help small businesses as well as big corporations. But in the long run, many small businesses will be dead. So the Fed said on Monday that it would establish the Main Street Business Lending Program to encourage lending to small and medium-size businesses. | Economists argue that in the long run, the Fed’s moves to cut interest rates and stimulate the economy should help small businesses as well as big corporations. But in the long run, many small businesses will be dead. So the Fed said on Monday that it would establish the Main Street Business Lending Program to encourage lending to small and medium-size businesses. |
| Updated June 16, 2020 | |
| The coronavirus emergency relief package gives many American workers paid leave if they need to take time off because of the virus. It gives qualified workers two weeks of paid sick leave if they are ill, quarantined or seeking diagnosis or preventive care for coronavirus, or if they are caring for sick family members. It gives 12 weeks of paid leave to people caring for children whose schools are closed or whose child care provider is unavailable because of the coronavirus. It is the first time the United States has had widespread federally mandated paid leave, and includes people who don’t typically get such benefits, like part-time and gig economy workers. But the measure excludes at least half of private-sector workers, including those at the country’s largest employers, and gives small employers significant leeway to deny leave. | |
| So far, the evidence seems to show it does. A widely cited paper published in April suggests that people are most infectious about two days before the onset of coronavirus symptoms and estimated that 44 percent of new infections were a result of transmission from people who were not yet showing symptoms. Recently, a top expert at the World Health Organization stated that transmission of the coronavirus by people who did not have symptoms was “very rare,” but she later walked back that statement. | So far, the evidence seems to show it does. A widely cited paper published in April suggests that people are most infectious about two days before the onset of coronavirus symptoms and estimated that 44 percent of new infections were a result of transmission from people who were not yet showing symptoms. Recently, a top expert at the World Health Organization stated that transmission of the coronavirus by people who did not have symptoms was “very rare,” but she later walked back that statement. |
| Touching contaminated objects and then infecting ourselves with the germs is not typically how the virus spreads. But it can happen. A number of studies of flu, rhinovirus, coronavirus and other microbes have shown that respiratory illnesses, including the new coronavirus, can spread by touching contaminated surfaces, particularly in places like day care centers, offices and hospitals. But a long chain of events has to happen for the disease to spread that way. The best way to protect yourself from coronavirus — whether it’s surface transmission or close human contact — is still social distancing, washing your hands, not touching your face and wearing masks. | Touching contaminated objects and then infecting ourselves with the germs is not typically how the virus spreads. But it can happen. A number of studies of flu, rhinovirus, coronavirus and other microbes have shown that respiratory illnesses, including the new coronavirus, can spread by touching contaminated surfaces, particularly in places like day care centers, offices and hospitals. But a long chain of events has to happen for the disease to spread that way. The best way to protect yourself from coronavirus — whether it’s surface transmission or close human contact — is still social distancing, washing your hands, not touching your face and wearing masks. |
| A study by European scientists is the first to document a strong statistical link between genetic variations and Covid-19, the illness caused by the coronavirus. Having Type A blood was linked to a 50 percent increase in the likelihood that a patient would need to get oxygen or to go on a ventilator, according to the new study. | A study by European scientists is the first to document a strong statistical link between genetic variations and Covid-19, the illness caused by the coronavirus. Having Type A blood was linked to a 50 percent increase in the likelihood that a patient would need to get oxygen or to go on a ventilator, according to the new study. |
| The unemployment rate fell to 13.3 percent in May, the Labor Department said on June 5, an unexpected improvement in the nation’s job market as hiring rebounded faster than economists expected. Economists had forecast the unemployment rate to increase to as much as 20 percent, after it hit 14.7 percent in April, which was the highest since the government began keeping official statistics after World War II. But the unemployment rate dipped instead, with employers adding 2.5 million jobs, after more than 20 million jobs were lost in April. | The unemployment rate fell to 13.3 percent in May, the Labor Department said on June 5, an unexpected improvement in the nation’s job market as hiring rebounded faster than economists expected. Economists had forecast the unemployment rate to increase to as much as 20 percent, after it hit 14.7 percent in April, which was the highest since the government began keeping official statistics after World War II. But the unemployment rate dipped instead, with employers adding 2.5 million jobs, after more than 20 million jobs were lost in April. |
| Mass protests against police brutality that have brought thousands of people onto the streets in cities across America are raising the specter of new coronavirus outbreaks, prompting political leaders, physicians and public health experts to warn that the crowds could cause a surge in cases. While many political leaders affirmed the right of protesters to express themselves, they urged the demonstrators to wear face masks and maintain social distancing, both to protect themselves and to prevent further community spread of the virus. Some infectious disease experts were reassured by the fact that the protests were held outdoors, saying the open air settings could mitigate the risk of transmission. | Mass protests against police brutality that have brought thousands of people onto the streets in cities across America are raising the specter of new coronavirus outbreaks, prompting political leaders, physicians and public health experts to warn that the crowds could cause a surge in cases. While many political leaders affirmed the right of protesters to express themselves, they urged the demonstrators to wear face masks and maintain social distancing, both to protect themselves and to prevent further community spread of the virus. Some infectious disease experts were reassured by the fact that the protests were held outdoors, saying the open air settings could mitigate the risk of transmission. |
| States are reopening bit by bit. This means that more public spaces are available for use and more and more businesses are being allowed to open again. The federal government is largely leaving the decision up to states, and some state leaders are leaving the decision up to local authorities. Even if you aren’t being told to stay at home, it’s still a good idea to limit trips outside and your interaction with other people. | States are reopening bit by bit. This means that more public spaces are available for use and more and more businesses are being allowed to open again. The federal government is largely leaving the decision up to states, and some state leaders are leaving the decision up to local authorities. Even if you aren’t being told to stay at home, it’s still a good idea to limit trips outside and your interaction with other people. |
| Common symptoms include fever, a dry cough, fatigue and difficulty breathing or shortness of breath. Some of these symptoms overlap with those of the flu, making detection difficult, but runny noses and stuffy sinuses are less common. The C.D.C. has also added chills, muscle pain, sore throat, headache and a new loss of the sense of taste or smell as symptoms to look out for. Most people fall ill five to seven days after exposure, but symptoms may appear in as few as two days or as many as 14 days. | Common symptoms include fever, a dry cough, fatigue and difficulty breathing or shortness of breath. Some of these symptoms overlap with those of the flu, making detection difficult, but runny noses and stuffy sinuses are less common. The C.D.C. has also added chills, muscle pain, sore throat, headache and a new loss of the sense of taste or smell as symptoms to look out for. Most people fall ill five to seven days after exposure, but symptoms may appear in as few as two days or as many as 14 days. |
| If air travel is unavoidable, there are some steps you can take to protect yourself. Most important: Wash your hands often, and stop touching your face. If possible, choose a window seat. A study from Emory University found that during flu season, the safest place to sit on a plane is by a window, as people sitting in window seats had less contact with potentially sick people. Disinfect hard surfaces. When you get to your seat and your hands are clean, use disinfecting wipes to clean the hard surfaces at your seat like the head and arm rest, the seatbelt buckle, the remote, screen, seat back pocket and the tray table. If the seat is hard and nonporous or leather or pleather, you can wipe that down, too. (Using wipes on upholstered seats could lead to a wet seat and spreading of germs rather than killing them.) | If air travel is unavoidable, there are some steps you can take to protect yourself. Most important: Wash your hands often, and stop touching your face. If possible, choose a window seat. A study from Emory University found that during flu season, the safest place to sit on a plane is by a window, as people sitting in window seats had less contact with potentially sick people. Disinfect hard surfaces. When you get to your seat and your hands are clean, use disinfecting wipes to clean the hard surfaces at your seat like the head and arm rest, the seatbelt buckle, the remote, screen, seat back pocket and the tray table. If the seat is hard and nonporous or leather or pleather, you can wipe that down, too. (Using wipes on upholstered seats could lead to a wet seat and spreading of germs rather than killing them.) |
| Taking one’s temperature to look for signs of fever is not as easy as it sounds, as “normal” temperature numbers can vary, but generally, keep an eye out for a temperature of 100.5 degrees Fahrenheit or higher. If you don’t have a thermometer (they can be pricey these days), there are other ways to figure out if you have a fever, or are at risk of Covid-19 complications. | Taking one’s temperature to look for signs of fever is not as easy as it sounds, as “normal” temperature numbers can vary, but generally, keep an eye out for a temperature of 100.5 degrees Fahrenheit or higher. If you don’t have a thermometer (they can be pricey these days), there are other ways to figure out if you have a fever, or are at risk of Covid-19 complications. |
| The C.D.C. has recommended that all Americans wear cloth masks if they go out in public. This is a shift in federal guidance reflecting new concerns that the coronavirus is being spread by infected people who have no symptoms. Until now, the C.D.C., like the W.H.O., has advised that ordinary people don’t need to wear masks unless they are sick and coughing. Part of the reason was to preserve medical-grade masks for health care workers who desperately need them at a time when they are in continuously short supply. Masks don’t replace hand washing and social distancing. | The C.D.C. has recommended that all Americans wear cloth masks if they go out in public. This is a shift in federal guidance reflecting new concerns that the coronavirus is being spread by infected people who have no symptoms. Until now, the C.D.C., like the W.H.O., has advised that ordinary people don’t need to wear masks unless they are sick and coughing. Part of the reason was to preserve medical-grade masks for health care workers who desperately need them at a time when they are in continuously short supply. Masks don’t replace hand washing and social distancing. |
| If you’ve been exposed to the coronavirus or think you have, and have a fever or symptoms like a cough or difficulty breathing, call a doctor. They should give you advice on whether you should be tested, how to get tested, and how to seek medical treatment without potentially infecting or exposing others. | If you’ve been exposed to the coronavirus or think you have, and have a fever or symptoms like a cough or difficulty breathing, call a doctor. They should give you advice on whether you should be tested, how to get tested, and how to seek medical treatment without potentially infecting or exposing others. |
| If you’re sick and you think you’ve been exposed to the new coronavirus, the C.D.C. recommends that you call your healthcare provider and explain your symptoms and fears. They will decide if you need to be tested. Keep in mind that there’s a chance — because of a lack of testing kits or because you’re asymptomatic, for instance — you won’t be able to get tested. | If you’re sick and you think you’ve been exposed to the new coronavirus, the C.D.C. recommends that you call your healthcare provider and explain your symptoms and fears. They will decide if you need to be tested. Keep in mind that there’s a chance — because of a lack of testing kits or because you’re asymptomatic, for instance — you won’t be able to get tested. |
| The Fed released few details, saying only that it “expects to announce” the program soon. Economists said the move looked at least partly like an effort by the Fed to reassure the public that it wasn’t favoring big businesses over small ones. | The Fed released few details, saying only that it “expects to announce” the program soon. Economists said the move looked at least partly like an effort by the Fed to reassure the public that it wasn’t favoring big businesses over small ones. |
| “I think the Fed is well aware of the optics and the messaging,” Ms. Coronado said. “It’s not always clear to people that buying billions in mortgage securities helps them, even though it does.” | “I think the Fed is well aware of the optics and the messaging,” Ms. Coronado said. “It’s not always clear to people that buying billions in mortgage securities helps them, even though it does.” |
| The Fed, along with other financial regulators, on Sunday announced new steps intended to encourage banks and other lenders to cut borrowers some slack during the pandemic. | The Fed, along with other financial regulators, on Sunday announced new steps intended to encourage banks and other lenders to cut borrowers some slack during the pandemic. |
| Imagine a small business that took out a loan last year to fund an expansion. Now the business has had to shut down temporarily because of the coronavirus outbreak, and the owner is having trouble making payments. Given the circumstances, the bank that made the loan may be willing to make some accommodations — deferring payments, perhaps, or extending the loan for a few months. But if the bank makes too many modifications, it could run into trouble with regulators concerned about excessive risk. | Imagine a small business that took out a loan last year to fund an expansion. Now the business has had to shut down temporarily because of the coronavirus outbreak, and the owner is having trouble making payments. Given the circumstances, the bank that made the loan may be willing to make some accommodations — deferring payments, perhaps, or extending the loan for a few months. But if the bank makes too many modifications, it could run into trouble with regulators concerned about excessive risk. |
| On Sunday, the Fed and other regulators basically said to go ahead and modify loans to help businesses survive. “The agencies encourage financial institutions to work with borrowers,” the regulators said, and “will not criticize institutions for doing so in a safe and sound manner.” | On Sunday, the Fed and other regulators basically said to go ahead and modify loans to help businesses survive. “The agencies encourage financial institutions to work with borrowers,” the regulators said, and “will not criticize institutions for doing so in a safe and sound manner.” |
| There is a consensus among economists that until the outbreak is brought under control, economic policy can do only so much. And while the Fed has greatly expanded its toolbox in recent years, there are steps that only Congress can take, like sending checks to individual households, cutting taxes or providing aid directly to state and local governments or to businesses. | There is a consensus among economists that until the outbreak is brought under control, economic policy can do only so much. And while the Fed has greatly expanded its toolbox in recent years, there are steps that only Congress can take, like sending checks to individual households, cutting taxes or providing aid directly to state and local governments or to businesses. |
| But the Fed’s advantage, Ms. Meyer said, is speed. | But the Fed’s advantage, Ms. Meyer said, is speed. |
| “The Fed is moving quickly, they’re being creative, and they’re doing whatever they can to support the flow of credit in the economy,” she said. | “The Fed is moving quickly, they’re being creative, and they’re doing whatever they can to support the flow of credit in the economy,” she said. |
| Will that be enough? “Time will tell,” she said. | Will that be enough? “Time will tell,” she said. |
| Jeanna Smialek contributed reporting. | Jeanna Smialek contributed reporting. |