By Howard Schneider
WASHINGTON (Reuters) – The United States government. United States You have $ 3 trillion in debt running through the pipeline due to the coronavirus pandemic. It also has perhaps 30 million or more newly unemployed Americans to support, tens of thousands of businesses at stake, and a possible protracted battle against the virulent disease to which to subscribe.
Given the choice between leaving the economy without a lifeline and further increasing the debt burden, Federal Reserve Chairman Jerome Powell on Wednesday sent a not-so-subtle message to elected officials in the United States. : spend what you need in this crisis.
"There is a certain degree of concern within the Federal Reserve that the bipartisan energy behind budget support seems to be waning", at a time when the fight against the virus is incomplete and when expectations of a weaker recovery have increased, said Krishna Guha. , Vice President of Evercore. ISI and a former New York Fed official.
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With the central bank of the United States capable, if necessary, of purchasing the massive new amounts of US Treasury debt that Congressional spending could generate, Powell "doesn't say" you spend 10, we buy 10. "But he says the central bank will turn its back on this environment … not because the Fed will bow to the elected officials. This is what it takes."
It's an unprecedented moment. At the start of the crisis, Congress allocated approximately $ 3 trillion to expand unemployment benefits, provide small business loans, help local governments and take other measures to help businesses and families stay afloat. movement and trade restrictions have been placed on the spread of the new coronavirus.
But basic fund-raising legislation was passed in late March, and some programs are about to expire, a fact that Guha noted raises a series of "mini-cliffs" that could trigger some programs. to reduce in the future. weeks.
Congress has started debating new tax measures, with Democrats in the US House of Representatives. United States Suggesting an additional $ 3 trillion to fight the crisis and Republicans avoiding issues such as how much aid to give to local governments. The White House said it wanted to see how events unfold first as more states reopen for more types of business and social interactions.
LIFE DURING WAR
However, the economy remains in an uncertain state, its fate is linked to the orientation of a health crisis that has caused more than 82,000 deaths, but without clear evidence that daily accumulation new cases and deaths have stagnated.
On Thursday, we expect a new round of new unemployment claims by the millions, with more than 30 million claims filed since the end of March. Unemployment peak linked to a pandemic could be close, but economists now predict that unemployment will remain high until at least the end of 2020.
As a result, Fed officials, and Powell in particular, are preparing for a longer-than-expected fight, and suggesting a level of cooperation between fiscal and monetary policy that is more reminiscent of war.
"Now when we are faced with the biggest shock that the economy has experienced in modern times, this is not the time to prioritize considerations like this," Powell said in a statement. interview Wednesday at the Peterson Institute for International Economics. He was concerned that the United States was borrowing too much to help individuals, businesses and local governments.
This could be reduced to the limits that are normally considered sacrosanct. "Monetary financing", a central bank that transfers and increases government debts without limit, is often associated with poor performance and central banks that become subordinate to the whims of elected officials.
This is something the Fed denies and says it will not do.
But the promise to buy government bonds as needed to keep interest rates low and market stability differs significantly in intent; In this case, Powell can encourage spending according to national needs and offer a helping hand to ensure that it remains viable.
There is little choice. As a member of the Washington-based Bipartisan Policy Center before joining the Fed, Powell worked on major efforts to help contain American deficits, an issue he tackled after serving in the U.S. Treasury Department.
William Hoagland, senior vice president of PCBs, said that the coronavirus epidemic has changed the consensus on this discussion, and Powell is right to acknowledge it.
"The separation between monetary and fiscal policy has become much less clear … The current situation has forced this drift and it is understandable," said Hoagland. "You are right to need a functioning economy."