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There's only so much the Fed can do

Marketplace with Kai Ryssdal
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2 months ago

Fed's jerome Powell Says Congress Should Do More To Save Economy

Marketplace with Kai Ryssdal
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There's only so much the Fed can do

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The last time we heard from the Federal Reserve about interest rates between official meetings was October of two thousand eight the collapse of Lehman Brothers was still fresh the hazards of the financial crisis. Perhaps just then really becoming clear and let me be clear here for a second. This is not that markets are functioning. There is no credit crisis. There is plenty of liquidity. But there's also plenty of uncertainty about what the NAVA Corona virus might mean for the global economy. And so this morning for the first time in eleven something years the Federal Reserve cut rates between meetings because said chair Jay Powell. They saw a risk to the global economy and chose to act but PAL added. We do recognize that a rate cut will not reduce the rate of infection. It won't fix a broken supply chain. We get that. We don't think we have all the answers K. But we do believe that our action will provide a meaningful boost to the economy by more specifically it will support accommodative financial conditions and avoid a tightening of financial conditions. Financial conditions are things like stock indexes and bond yields of the value of the dollar. All of which Powell in the federal hoping and it will help boost household and business confidence with the caveat that it's early yet not a whole lot of market confidence was boosted today. Details at the usual spots in this program. But there is a slice of this morning's events that are worth couple of minutes here because before the Fed made its announcement. The Group of Seven finance ministers and central bankers came out with honestly a pretty bland statement. We're keeping an eye on things in essence is what they said so with that background. How then did the Fed go about making the decision to cut? And how audit be red that we call Daniel Torello. He was on the FEDS Board of Governors for eight years. Got There just after that. Two Thousand and eight cut we started with. He teaches now at Harvard. Law Mr Trillo. Welcome back to the program Sir. Good to be with you. Kai with the caveat as I said that you're not there When the Fed made its two thousand eight cut. Could you give me some insight into the mood in the room? Or the mood. I suppose on the conference call when the Fed makes decisions on the precipice of a crisis. So I suspect first off that a lot of preliminary discussions were held last week in advance of Chair. Powell's statement on Friday so I would expect that. This was a relatively brief meeting wedged between that g seven call and the announcement by the Fed in the late morning the mood was probably a fairly somber one and I again. I suspect without knowing that they didn't do anything close to a full go. Round with lots of analysis by all the members and remember the Reserve Bank presidents would would almost all if not all have been participating by video. Conference right Okay so so. The personal subjective question. Were you surprised when you when you read about this? I was a little surprised. A ASSUME THAT. In retrospect that what happened was when they set the G. Seven call. They figured that they were gonNA move. Regardless of what the g seven did. I was more surprised by the outcome of the g seven. Call which was about as little as you could have had such call the well the the markets sorry. Turner up the Marxist. This morning did not care for that. G seven call at all right because the G. seven basically said Yeah. We're watching right. Exactly and and expectations are obviously raised. And so I assume that the Fed intended to do what it did regardless of how that call came out But it probably did take at least a little. Bit of what positives they were looking for a way from the from their own move. Yeah so speaking of the positives they were looking for. They did not get any At at you know so far anyway Out of the market today Reading the tea leaves for me that would Ya. I mean clearly. It looks like people are worried that the Fed knows more than the rest of us. Know there does seem to be a little bit of. I'm just reading the market reaction the way you are but there does seem to be a little bit of that reaction mean to me the questions since in the last couple of weeks since people have been actively talking about this have been a couple one. How much and how does a rate cut at this moment? Actually help given the supply chain issues that the chair referred to and secondly to the degree. That one's munition is limited. Is it wiser to keep most of it to deal with the actual fallout when viruses receded? And you're fighting recession or is it better to kind of preemptively act now in an effort both to signal the markets and also perhaps trying to lay some foam on the runway last thing. And then I'll let you go to words fiscal policy. There is a whole nother apparatus of government that can affect the economy. It's Congress and the White House and taxing and spending. How concerned are you that we haven't seen anything from them yet? Well I mean this is kind of the story of twenty twenty in America right that that the political branches seemed to have more difficulty responding. And I I noticed the Secretary. Mnuchin said he's he's interested in working with Congress but it does seem as though everything is moving awfully slowly. Daniel Tarullo for Eight years a little bit more than that. Actually member of the Board of Governors of the Federal Reserve Bank of the United States now professor at the law