Fed Chairman Jay Powell published his prepared remarks for his testimony tomorrow before the House Financial Services Committee (along with US Treasury Secretary Stephen Mnuchin).
“We have entered an important new stage and did it earlier than expected,” Powell noted.
“Although this rebound in economic activity is welcome, it also poses new challenges, in particular the need to control the virus.”
Noting the impetus for lifting restrictions on commercial activities, Powell criticized the need to contain the virus, noting that “A full recovery is unlikely until people are confident that it is safe to reconnect to a wide range of activities.”
Nothing pops up from prepared comments that should be market-based.
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Chairman Waters, member of the McHenry rating and other committee members thank you for the opportunity to speak today to discuss the extraordinary problems that our country faces and the steps we are taking to address them.
We are meeting as the pandemic continues to cause tremendous difficulties, taking lives and livelihoods, both at home and around the world. This is a global public health crisis, and we remain grateful to our healthcare providers for providing the most important response and to our core employees who help us meet our daily needs. These loyal people put themselves at risk day after day by serving others and our country.
Since March, the virus and decisive measures taken to combat its spread have led to a sharp decline in economic activity and a sharp reduction in jobs. Cost and production figures fell sharply in April, and the decline in real gross domestic product or GDP in the second quarter is likely to be the largest ever recorded. The onset of the pandemic caused enormous tension in some major financial markets, which led to a deterioration in credit flow in the economy and the threat of further weakening economic activity and job losses.
The crisis was met by swift and decisive political action in government, including the Coronavirus Aid, Aid and Economic Security Act (CARES Act). This direct support is crucial not only to help families and businesses in difficult times, but also to limit the long-term damage to our economy.
As the economy recovers, incoming data begin to reflect the resumption of economic activity: Many businesses open their doors, hiring is gaining momentum, and costs are risingEmployment grew, while consumer spending soared in May. We entered an important new stage and did it earlier than expected. Although this rebound in economic activity is welcome, it also poses new challenges, in particular the need to control the virus.
Although recent economic data provide some positive signs, we remember that more than 20 million Americans lost their jobs. and that the pain was not evenly distributed. The increase in unemployment was especially serious for lower-wage workers, for women, as well as for African Americans and Hispanics. This upheaval in economic luck caused pain that is hard to catch in words, as life turned upside down due to great uncertainty about the future.
Production and employment remain well below the pre-pandemic level. The way forward for the economy is extremely uncertain and will largely depend on our success in containing the virus. A full recovery is unlikely until people are sure that it can be re-included in a wide range of activities.
The way forward will also depend on political actions taken at all levels of government to assist and support recovery over the required period.
The Federal Reserve’s response to these extraordinary events was based on our mandate to promote maximum employment and stable prices for the American people, as well as on our role in strengthening the stability of the financial system. Our actions and programs directly support the flow of loans to households, enterprises of all sizes, as well as state and local governments. These programs benefit Main Street by providing funding where it is otherwise inaccessible, helping employers retain their employees and allowing consumers to continue to spend. In many cases, acting as support for major financial markets, programs help increase the willingness of private lenders to expand lending and ease financial conditions for families and businesses across the country. The adoption of the CARES Act by Congress was critical for the Federal Reserve and the Treasury to create many of these lending programs. We are committed to using these programs, as well as our other tools, to do our best to ensure stability, ensure the highest possible recovery and limit long-term damage to the economy.
In discussing the actions that we have taken, I will start with monetary policy. In March, we lowered our discount rate to almost zero and expect interest rates to be maintained at that level until we are sure that the economy has withstood recent events and is on the way to achieving our goals of maximum employment and price stability.
In addition to these steps, we have taken decisive action in four areas: open market operations to restore market functioning; actions to improve liquidity conditions in short-term financing markets; programs, in coordination with the Ministry of Finance, to more directly facilitate the flow of loans to households, enterprises, as well as state and local governments; and measures to encourage banks to use their substantial capital and liquidity reserves accumulated over the past decade to support the economy during this difficult time.
Let me now move on to our open market operations. As tension and uncertainty grew in mid-March, investors quickly turned to cash and short-term government securities, and the markets for treasury and agency mortgage securities, or MBS, began to experience difficulties. These markets are critical to the overall functioning of the financial system and to the transfer of monetary policy to the wider economy. In response, the Federal Open Market Committee acquired treasury securities and MBS for the amounts necessary to ensure the smooth functioning of the market. After these purchases, market conditions improved significantly, and in early April we began to gradually slow down the pace of purchases. In order to maintain the normal functioning of the market and thereby facilitate the effective transfer of monetary policy to wider financial conditions, we will increase our treasury assets and MBS in the coming months, at least at the current pace. We will closely monitor the development of events and are ready to adjust our plans in accordance with our goals.
Against the background of tension and uncertainty in mid-March, as well as in connection with the emergence of more unfavorable prospects for the economy, investors showed a greater hostility to risk and abandoned longer-term and more risky assets, as well as some money market mutual funds. To help stabilize short-term financing markets, we extended and reduced the rate on loans with a discount window for depository institutions. The Board also, with the approval of the Treasury, established the Initial Dealer Line of Credit (PDCF) in accordance with our term lending authority in section 13 (3) of the Federal Reserve Act. As part of the PDCF, the Federal Reserve provides loans well secured to primary dealers, which are important intermediaries in the short-term financing markets. Similar to the large-scale purchases of treasury securities and MBS, which I mentioned earlier, this tool helps to restore the normal functioning of the market.
In addition, in accordance with Section 13 (3) and in conjunction with the Treasury, we have created a Commercial Paper Financing Facility, or CPFF, and a Liquidity Fund for the Mutual Money Market Fund, or MMLF. Millions of Americans invest their savings in these markets, and employers use them to provide short-term funding to pay wages and support their operations. Both of these facilities have equity capital provided by the Ministry of Finance to protect the Federal Reserve from losses. After the announcement and implementation of these opportunities, market performance indicators on commercial papers and other short-term financing markets improved significantly, and the rapid outflow of funds from primary and tax-free money market funds ceased.
In mid-March, offshore US dollar financing markets were also under stress. In response, the Federal Reserve and several other central banks announced the expansion and strengthening of dollar-denominated liquidity lines. In addition, the Federal Reserve introduced a new mechanism for the temporary repurchase of the Treasury for foreign monetary authorities. These actions have helped stabilize global US dollar financing markets, and they continue to support the smooth functioning of the US Treasury and other financial markets, as well as economic conditions in the United States.
When it became clear that a pandemic would significantly undermine the global economy, long-term debt markets also faced problems. The cost of borrowed funds has risen sharply for those issuing corporate bonds, municipal debt and asset-backed securities (ABS), secured by consumer loans and loans for small businesses. In fact, creditworthy households, enterprises, and state and local governments could not borrow at reasonable rates and other conditions, which could further reduce economic activity. In addition, small and medium-sized enterprises, which traditionally rely on bank lending, have faced a significant increase in funding needs, as measures taken to curb the spread of the virus forced them to temporarily shut down or limit operations, significantly reducing revenues.
To support long-term financing, which is crucial for economic activity, the Federal Reserve, in collaboration with the Ministry of Finance and using the capital provided for this purpose under the CARES Act, has announced several emergency lending mechanisms in accordance with section 13 (3). ) Federal Reserve Act. These mechanisms are designed to ensure that credit flows to borrowers and thereby supports economic activity.
On March 23, the Board announced that it would support consumer and business lending by creating a Securities Urgent Lending Facility (TALF). TALF has the right to issue loans in the amount of up to 100 billion US dollars and is secured by capital in accordance with the CARES Law of 10 billion US dollars. This credit line is secured by high-rated securities secured by car loans, credit card loans, other consumer and business loans, commercial mortgage-backed securities and other assets. TALF supports access to credit from consumers and businesses and provides liquidity to the broader ABS market. The loan was issued by the first bank on June 25 and today has provided loans in the amount of $ 252 million. US acceptable borrowers. Since TALF was announced, ABS spreads have been significantly reduced. Thus, the tool can be used relatively little and mainly serve as support, guaranteeing lenders that they will have access to financing, and giving them confidence in providing loans to households and enterprises.
To support the loan needs of large employers, the Federal Reserve has also created a Corporate Primary Market Credit Facility (PMCCF) and a Secondary Corporate Credit Facility (SMCCF). These properties primarily buy bonds issued by US companies with an investment rating of March 22, 2020. These two properties have a total purchasing power of up to 750 billion US dollars and are secured by 75 billion US dollars in the capital of the CARES Act. The final terms and operational details of the PMCCF were announced on June 29, and it is ready to purchase new issued corporate bonds and syndicated loans, which provide support to enterprises seeking to refinance their existing loan or obtain new financing. SMCCF buys outstanding corporate bonds and shares in corporate bond exchange traded funds (ETFs) in order to facilitate the smooth functioning of the aftermarket. SMCCF complements PMCCF because SMCCF-related secondary market improvements facilitate companies’ access to bond and loan markets on reasonable terms. SMCCF started with ETF purchases on May 12th. Earlier this month, the mechanism began to gradually reduce ETF purchases, as it began to buy a wide and diversified portfolio of individual corporate bonds in order to more directly support the smooth functioning and market liquidity of the secondary market. Procurement volumes are tied to the functioning of the market and are currently at a very low level. The asset currently holds about $ 10 billion in bonds and ETFs.
After the announcement of two corporate credit lines at the end of March corporate bond market conditions have improved significantly. Investment grade loan spreads restored most of the expansion that took place in February and March, and output in the primary market recovered strongly. Liquidity in the secondary market also improved, and by mid-April, the flows of mutual funds and ETFs specializing in corporate bonds had completely changed.
The Federal Reserve also launched a loan program on Main Street, which is designed to provide loans to small and medium-sized enterprises that were in good financial condition before the pandemic; Such firms typically rely on bank lending because they are too small to directly attract bond markets. Under the Main Street program, banks give out new loans or increase the size of existing loans for relevant enterprises and sell borrowed funds to the Federal Reserve. The loan is secured by 75 billion capital in the CARES Act and can acquire up to 600 billion dollars in the form of equity. The Federal Reserve published all the legal documents that borrowers and lenders will have to sign as part of the program, and registration of lenders began on June 15. Participation in loans will be soon purchased. In addition, the Federal Reserve recently requested feedback on a proposal to expand the Main Street program to include loans granted to small and medium-sized nonprofits, such as hospitals and universities. Nonprofit organizations provide vital services throughout the country, and the program will also offer them support.
While businesses in certain sectors that have been hit hardest by the pandemic report continuing difficulties in accessing credit, The Small Business Administration’s Salary Protection Program (PPP), which builds on existing banking lines, appears to meet the urgent lending needs of many small businesses. In the coming months, Main Street loans could prove to be a valuable resource for firms that were in good financial condition before the pandemic.
To increase the efficiency of the PPP of the Small Business Administration, on April 16, the Federal Reserve launched the liquidity program of the salary protection program. The fund provides liquidity to lenders secured by their PPP loans to small enterprises and has the ability to lend up to the full PPP amount. По состоянию на прошлой неделе, кредитная линия была привлечена к участию в финансовых учреждениях на сумму более 65 миллиардов долларов США. Самый последний ежемесячный опрос Национальной федерации независимого бизнеса, опубликованный в мае, показывает, что малые предприятия смогли удовлетворить свои потребности в финансировании в последние месяцы в основном благодаря ГЧП.
Чтобы помочь правительствам штатов и местным органам власти лучше справляться с давлением денежных потоков, чтобы продолжать обслуживать домохозяйства и предприятия в своих общинах, Федеральный резерв совместно с министерством финансов учредил Фонд муниципальной ликвидности (MLF). Многосторонний фонд обеспечен капиталом в соответствии с Законом CARES в размере 35 млрд. Долл. США и имеет возможность приобретать до 500 млрд. Долл. США краткосрочных долгов непосредственно у штатов США, округов, городов и некоторых многогосударственных организаций. Кредит был введен в эксплуатацию 26 мая, и на сегодняшний день МЗФ приобрел краткосрочный муниципальный долг на сумму 1,2 млрд долларов. С МЗФ и другими объектами, созданными в качестве поддержки частному рынку, многие части рынка муниципальных облигаций значительно оправились от беспрецедентного стресса, возникшего ранее в этом году. Доходность муниципальных облигаций значительно снизилась, выпуск был устойчивым в течение последних двух месяцев, и условия на рынке улучшились
Инструменты, которые Федеральная резервная система использует в рамках своих 13 (3) полномочий, предназначены для чрезвычайных ситуаций, например, те, которые мы пережили. Когда экономические и финансовые условия улучшатся, мы вернем эти инструменты обратно в набор инструментов.
Последняя область, где мы предприняли шаги, была в банковском регулировании. Правление внесло несколько корректировок, многие временные, чтобы побудить банки использовать свои сильные позиции для поддержки домохозяйств и предприятий. В отличие от финансового кризиса 2008 года, банки вступили в этот период со значительными буферами капитала и ликвидности и улучшенным управлением рисками и операционной устойчивостью. В результате они оказались в хорошем положении, чтобы смягчить финансовые шоки, которые мы наблюдаем. В отличие от кризиса 2008 года, когда банки отказались от кредитования и усилили экономический шок, в этом кризисе они значительно расширили кредиты клиентам и помогли поддержать экономику.
Федеральному резерву была поручена важная миссия, и за последние несколько месяцев мы очень быстро предприняли беспрецедентные шаги. При этом мы принимаем на себя ответственность за то, чтобы американский народ был максимально прозрачным. Что касается средств, подкрепленных равенством в Законе CARES, мы провели широкий охват и запросили общественное мнение, которое имело решающее значение для их развития. Например, в ответ на полученные комментарии Казначейство и Федеральная резервная система внесли ряд изменений, чтобы расширить сферу действия программы кредитования на главной улице, чтобы охватить более широкий круг заемщиков и повысить гибкость условий кредитования. И теперь мы раскрываем и будем ежемесячно раскрывать имена и реквизиты участников каждого учреждения; заимствованные суммы и начисленные проценты; и общие затраты, доходы и сборы для каждого из этих объектов.
Мы признаем, что наши действия являются лишь частью более широкой реакции государственного сектора. Принятие Конгрессом Акта CARES имело решающее значение для того, чтобы Федеральная резервная система и министерство финансов могли разработать многие программы кредитования. Закон CARES и другие законодательные акты предоставляют прямую помощь людям, предприятиям и сообществам. Эта прямая поддержка может иметь решающее значение не только для оказания помощи семьям и предприятиям в трудную минуту, но и для ограничения долговременного ущерба нашей экономике. Мы понимаем, что работа Федерального резерва затрагивает сообщества, семьи и предприятия по всей стране. Все, что мы делаем, служит нашей общественной миссии. Мы стремимся использовать наш полный набор инструментов для поддержки экономики и обеспечения того, чтобы восстановление после этого трудного периода было максимально устойчивым.
Спасибо. Я был бы рад ответить на ваши вопросы.