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Federal Reserve's actions starting to work, Daly says
[BENGALURU] The US central bank's rapid-fire moves this week to slash borrowing costs and shore up key pockets of the financial sector may help households and businesses weather the economic pain of the battle against coronavirus, San Francisco Federal Reserve President Mary Daly said on Thursday.
"If we are able to offset some of the worst economic declines now - shelter people a little bit from them, shield them from that - then we will be in a better position, if you will, to pick back up once the public health emergency is behind us," Ms Daly said in a telephone interview with Reuters.
"We are in a rapidly changing situation and we are working hard to continue to provide liquidity to the marketplace, continue to ensure that credit markets work, and have the policy accommodation in place" to support growth when it can return.
Millions of people across the United States, including Ms Daly herself, have been told to stay home except to conduct "essential" business as part of a drive to limit new coronavirus infections and keep them from overwhelming the healthcare system.
But, Ms Daly said, "the very thing that we need to do for people, to protect them, is very hard on the economy," as businesses are forced to close because customers are staying home.
To help combat that "sudden stop" to the economy, she said, credit needs to be both cheap and readily available, and for that, markets need to be functioning.
"It's encouraging to see that there's more borrowing at the discount window; it's encouraging to see that some of the volatility in markets has settled down," Ms Daly said.
Borrowing at the Fed's discount window for emergency loans surged this week.
"Our tools are starting to work in the markets that we care about, and I think that's really important. We'll continue to monitor that and see if more needs to be done," she said
Ms Daly said she has been doing outreach to governors, lawmakers, local leaders, banks, CEOS, and others about how to help small businesses and households affected by the shutdown.
Americans filing for unemployment benefits surged this week, and layoffs are set to rise further as more regions ask their residents to stop normal life in order to halt the spread of the virus.
"I think it's absolutely appropriate to have the Federal Reserve and the other regulatory agencies working with fiscal agents to think about how to give relief to small businesses, and how to ensure that banks can give relief to small businesses and to households as we weather this near term shutdown," she said. Nationwide, the Fed has "a team of people out talking to banks about this and... how do you facilitate this throughout the economy."
Fiscal stimulus from Congress and big moves by the Fed this week are "exactly what we need to do to offset some of the near-term disruption, but we have work to do still."
Ms Daly said she would remain "data dependent" as she weighs what further Fed action might be needed.
"If we have the right public health tools in place and we make the kind of changes that are required... and we offset the short-term disruptions at least in part that the economy is going to take from doing the right thing ... I'm confident we can get a better outcome," Ms Daly said. "But if we don't do those things, we would end up in an outcome that is far worse."