Fed Will Use QE, if Needed
Fed Chair Jerome Powell testified before Congress earlier this week and provided some details about the Fed’s monetary strategy. On Tuesday, Powell told the House Financial Services Committee that although the China coronavirus could pose a risk to the global economy, the Fed had no plans to change its current monetary policy.
On Wednesday Powell outlined to the Senate Banking Committee his strategy in case of a financial crisis. Powell said that the Fed had two tools to fight a recession – quantitative easing, which involves large purchases of assets, and forward guidance, which means communicating with the markets about the likely future course of interest rate policy. Powell said that he believes that the Fed would use both these tools “aggressively should the need arise to do so”. Under Powell’s leadership, the Fed cut rates three times last year to snuff out any recessionary trends in the economy, but with rates currently at a range of 1.50-1.75%, there isn’t much more room to keep cutting.