While the US GDP contracted by 4.8% in the first quarter, according to the first estimate published on Wednesday, and that it could collapse by 30% in annual rate in the second quarter, the greatest danger for Jay Powell would give the impression that the Federal Reserve has used up all its ammunition.
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At the end of the two-day meeting of its monetary committee, the Fed stressed on Wednesday its commitment "to use the full panoply of its tools to support the economy" . In his press conference Jay Powell returned to the terms of use of the extraordinary debt buyback programs deployed since February were expected Wednesday evening. But as the Covid-19 and uncertain deconfinement make any macroeconomic forecast futile, the Fed boss could not say until when this unprecedented device would be required.
Rate at zero
Since mid-March, the American central bank has already not only cut its main key rate to zero. Yesterday it renewed its promise to keep it at this floor "until (it has) confidence that the economy has weathered recent events" . For the past month and a half, it has also bought nearly 2,000 billion dollars in treasury securities and bonds pledged on real estate debts. It promises to continue these buyouts "in amounts necessary to support the smooth functioning of the markets" .
It has also pledged to use the $ 454 billion of guarantees granted by the Congress to the Treasury to lend directly to businesses or local communities up to ten times this amount. The latest measure will allow the Fed to buy up to $ 500 billion in debt from communities with dried up tax revenues.
If the central bank needs additional ammunition, Congress is ready to vote new credits to the treasury. The only thing that seems to be ruled out at the moment by Jay Powell and his colleagues is the use of negative interest rates.