Fed’s Powell: Fed is not out of ammunition, can do more if required – 60 Minutes interview

While playing down the risk of the US entering a second great depression, in a 60 Minutes interview, Federal Reserve's Chairman Jerome Powell argues that the Fed is not out of ammunition and can do more if required. 

Key comments

We're not out of ammunition, not by a long shot.

20-25% peak unemployment projection sounds about right.

There's really no limit to what we can do with these lending programs that we have. So there's a lot more we can do to support the economy, and we're committed to doing everything we can as long as we need to.

If we are thoughtful and careful about how we reopen the economy so that people take these social distancing measures forward and try to do what we can not to have another outbreak...then the recovery can begin fairly soon.

Fed not out of ammunition "by a long shot," can expand existing programs or add new ones, add to asset purchases as needed.

Eeconomy can start getting better "fairly soon," but full recovery from pandemic will require restoration of confidence.

Reasonable "base case" to expect additional job losses through june, with unemployment rate falling in second half of year.

"Assuming there is not a second wave of the coronavirus, I think you will see the economy recover steadily through the second half of this year."

"For the economy to fully recover people will have to be fully confident and that may have to await the arrival of a vaccine."

"By keeping people and businesses out of insolvency just for maybe three to six more months....we can buy time with that," as health authorities work on virus control. "That kind of support may be appropriate."

US needs to find path "to a more inclusive prosperity" in the future.

Medical metrics" and spread of virus most important data for fed right now in determining path of economy.

Market implications

If it isn't enough that the US is dealing with COVID-19, markets are also tuning into a war of words from the two most powerful economies in the world, the US and China. Trade wars, COVID-19 backlash and now shows of muscle power on the nuclear arms front:

• A War of Words: I call on China to expand the number of nuclear warheads & enhance nuclear deterrence – Global Times

However, sticking with Powell, the bond market will be the one to watch. As yields on the 3 and 5 years head closer towards zero, it will be a signal that rates will indeed be turning negative, despite Powell's arguments that negative rates will not suit the US economy, and pointing to a far deeper and longer recession.