The president of the Federal Reserve Bank of Chicago said the central bank had limited room to do more and that Congress would need to support the economy if the United States faced a full-fledged second wave of coronavirus infections.
“The punchline ought to be that the ball is in Congress’s court,” Charles Evans, president of the Chicago Fed, said on a call with reporters.
The Federal Reserve cut its primary interest rate, the federal funds rate, to near-zero in March. Central banks abroad have cut borrowing costs into negative territory, but Fed officials have been consistently skeptical that such policies will be effective.
“We can’t lower the funds rate. Negative interest rates aren’t going to be the tool that we decide to use at this point, or probably at any point,” Mr. Evans said.
The Fed might be able to use a policy that would cap certain interest rates — an approach commonly called “yield curve control” — but Mr. Evans suggested that slightly higher medium-term rates are not the real economic problem. The Fed has the ability to offer emergency loans to backstop turbulent markets, but businesses and governments might need grants to make it through.
“At the moment, it’s really fiscal policy that needs to be addressing this,” he said. Even now, more congressional support is needed to shore up the economy as the pandemic wears on, Mr. Evans said.
The Chicago Fed chief was not alone in arguing that recently lapsed expanded unemployment benefits should be in some way addressed, as Congress debates the future of its pandemic response.
Thomas Barkin, president of the Federal Reserve Bank of Richmond, warned that the pandemic might be creating an economic “sinkhole,” rather than the pothole policymakers initially believed they were facing. Robert S. Kaplan, president of the Federal Reserve Bank of Dallas, said in an interview on Bloomberg television on Monday that the policies had helped to bolster consumers, adding that “it’s important that we see an extension of it.”
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