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| Bonds Hit Historic Lows, Prompting Fed to Ponder: What More Can We Do? | Bonds Hit Historic Lows, Prompting Fed to Ponder: What More Can We Do? |
| (3 days later) | |
| Jerome H. Powell, the Federal Reserve chair, watched warily as diagnosed cases of coronavirus ticked higher and the stock market sank lower through the final week of February. | Jerome H. Powell, the Federal Reserve chair, watched warily as diagnosed cases of coronavirus ticked higher and the stock market sank lower through the final week of February. |
| Economists around the world were lowering their growth estimates as factories delayed production and quarantines spread from Asia to Europe. Businesses in the Fed’s extended network of contacts were voicing concerns about a disease that, weeks before, had hardly registered on their radar. | Economists around the world were lowering their growth estimates as factories delayed production and quarantines spread from Asia to Europe. Businesses in the Fed’s extended network of contacts were voicing concerns about a disease that, weeks before, had hardly registered on their radar. |
| Not all Fed officials were concerned — the president of the St. Louis Fed, James Bullard, told CNBC that the virus would most likely be a blip — but as markets gyrated, Mr. Powell decided that the central bank needed to signal readiness. | Not all Fed officials were concerned — the president of the St. Louis Fed, James Bullard, told CNBC that the virus would most likely be a blip — but as markets gyrated, Mr. Powell decided that the central bank needed to signal readiness. |
| On Friday, Feb. 28, he issued a statement making clear that the Fed was carefully monitoring virus developments. Then he started working the phones, both touching base with his counterparts abroad and calling his colleagues to discuss the need to act. On Tuesday, the policy-setting Federal Open Market Committee announced its first emergency interest rate cut — and its biggest one-time move — since 2008, with officials approving it unanimously. | On Friday, Feb. 28, he issued a statement making clear that the Fed was carefully monitoring virus developments. Then he started working the phones, both touching base with his counterparts abroad and calling his colleagues to discuss the need to act. On Tuesday, the policy-setting Federal Open Market Committee announced its first emergency interest rate cut — and its biggest one-time move — since 2008, with officials approving it unanimously. |
| The swift action lowered interest rates to a range of 1 percent to 1.25 percent. The change could help insulate the economy by keeping borrowing cheap when business conditions worsen, as they are expected to do as the virus spreads. | The swift action lowered interest rates to a range of 1 percent to 1.25 percent. The change could help insulate the economy by keeping borrowing cheap when business conditions worsen, as they are expected to do as the virus spreads. |
| But it also leaves Fed officials with historically little room to cut short-term rates: They lowered borrowing costs to near zero from above 5 percent in the 2007-09 downturn. And yields on longer-term government debt have been slumping, weakening the Fed’s second-string tool — bond buying, which works by lowering long-term rates. | But it also leaves Fed officials with historically little room to cut short-term rates: They lowered borrowing costs to near zero from above 5 percent in the 2007-09 downturn. And yields on longer-term government debt have been slumping, weakening the Fed’s second-string tool — bond buying, which works by lowering long-term rates. |
| Those constraints have set off a new round of soul-searching among central bankers, who were already reviewing their tool kit for fighting economic shocks and now find themselves running against the clock. | Those constraints have set off a new round of soul-searching among central bankers, who were already reviewing their tool kit for fighting economic shocks and now find themselves running against the clock. |
| Analysts warn it is increasingly plausible that the spreading coronavirus could end the United States’ record-long expansion, though that would be a severe outcome. While monetary policy is not ideally suited to fight a virus that is disrupting supply chains and quarantining workers, Congress and the White House do not appear to be poised to spring into action to help: President Trump regularly points to Mr. Powell and his colleagues when asked about the government’s economic response. | Analysts warn it is increasingly plausible that the spreading coronavirus could end the United States’ record-long expansion, though that would be a severe outcome. While monetary policy is not ideally suited to fight a virus that is disrupting supply chains and quarantining workers, Congress and the White House do not appear to be poised to spring into action to help: President Trump regularly points to Mr. Powell and his colleagues when asked about the government’s economic response. |
| “I think what happens is the Fed should cut and the Fed should stimulate,” Mr. Trump said on Friday when asked about the need for stimulus. Despite the half-point cut on Tuesday, he complained that “we have a Fed that is not exactly proactive.” | “I think what happens is the Fed should cut and the Fed should stimulate,” Mr. Trump said on Friday when asked about the need for stimulus. Despite the half-point cut on Tuesday, he complained that “we have a Fed that is not exactly proactive.” |
| It is not yet clear that coronavirus will create a prolonged shock. But if infections continue to spread, it could keep workers at home and production at bay, causing a more extended drag on growth. Market indicators suggest about a 40 percent chance that a U.S. recession could start in the next year, based on JPMorgan Chase models. | It is not yet clear that coronavirus will create a prolonged shock. But if infections continue to spread, it could keep workers at home and production at bay, causing a more extended drag on growth. Market indicators suggest about a 40 percent chance that a U.S. recession could start in the next year, based on JPMorgan Chase models. |
| As Wall Street recognizes the Fed’s limited ammunition and the growing risks, investors are increasingly pessimistic. Stocks were down 1.7 percent on Friday, though the S&P 500 was up for the week. | As Wall Street recognizes the Fed’s limited ammunition and the growing risks, investors are increasingly pessimistic. Stocks were down 1.7 percent on Friday, though the S&P 500 was up for the week. |
| If the bad economic outcome that investors are penciling in materializes, and the Fed’s depleted options aren’t supplemented by a big fiscal push, that would pave the way for a more painful downturn — one that costs jobs and subdues business for a longer period. | If the bad economic outcome that investors are penciling in materializes, and the Fed’s depleted options aren’t supplemented by a big fiscal push, that would pave the way for a more painful downturn — one that costs jobs and subdues business for a longer period. |
| “The question here is: Can we design a new monetary system here?” Andrew Levin, an economics professor at Dartmouth, said on a panel in New York on Friday. “We can’t just say, ‘None of these things are very good, so we’ll just throw up our hands and hope that fiscal policy comes to the rescue.’” | “The question here is: Can we design a new monetary system here?” Andrew Levin, an economics professor at Dartmouth, said on a panel in New York on Friday. “We can’t just say, ‘None of these things are very good, so we’ll just throw up our hands and hope that fiscal policy comes to the rescue.’” |
| He added, “We’ve got to be prepared, hope for the best, prepare for the worst.” | He added, “We’ve got to be prepared, hope for the best, prepare for the worst.” |
| Also in New York on Friday, the president of the Federal Reserve Bank of Boston, Eric Rosengren, suggested a potential recourse — one likely to spark a conversation among his colleagues. Officials may need to buy assets other than government bonds to counter the next downturn, he said during a speech. | Also in New York on Friday, the president of the Federal Reserve Bank of Boston, Eric Rosengren, suggested a potential recourse — one likely to spark a conversation among his colleagues. Officials may need to buy assets other than government bonds to counter the next downturn, he said during a speech. |
| Bond-buying by the central bank bolsters the economy by lowering rates on long-term debt, making borrowing cheaper and encouraging spending. Because the yield on 10-year Treasury bonds dropped well below 1 percent on Friday, hitting lows never before seen in the United States, snapping up government-backed bonds could have far less impact in the future. | Bond-buying by the central bank bolsters the economy by lowering rates on long-term debt, making borrowing cheaper and encouraging spending. Because the yield on 10-year Treasury bonds dropped well below 1 percent on Friday, hitting lows never before seen in the United States, snapping up government-backed bonds could have far less impact in the future. |
| If the Fed cuts its policy interest rate to near zero, Mr. Rosengren said, it is possible that the 10-year Treasury rate will also fall to rock bottom. | If the Fed cuts its policy interest rate to near zero, Mr. Rosengren said, it is possible that the 10-year Treasury rate will also fall to rock bottom. |
| “Such a situation would raise challenges policymakers did not face even during the Great Recession,” he said. And in such a case, “we should allow the central bank to purchase a broader range of securities or assets.” | “Such a situation would raise challenges policymakers did not face even during the Great Recession,” he said. And in such a case, “we should allow the central bank to purchase a broader range of securities or assets.” |
| “Such a policy,” he noted, “would require a change in the Federal Reserve Act.” | “Such a policy,” he noted, “would require a change in the Federal Reserve Act.” |
| Mr. Rosengren did not specify which type of assets he thinks the Fed might need to add to its portfolio. But central banks in other nations can buy equities and corporate bonds, whereas the Fed is legally limited to government-backed debt, like mortgage-backed securities and Treasury notes. | Mr. Rosengren did not specify which type of assets he thinks the Fed might need to add to its portfolio. But central banks in other nations can buy equities and corporate bonds, whereas the Fed is legally limited to government-backed debt, like mortgage-backed securities and Treasury notes. |
| Updated June 5, 2020 | |
| The unemployment rate fell to 13.3 percent in May, the Labor Department said on June 5, an unexpected improvement in the nation’s job market as hiring rebounded faster than economists expected. Economists had forecast the unemployment rate to increase to as much as 20 percent, after it hit 14.7 percent in April, which was the highest since the government began keeping official statistics after World War II. But the unemployment rate dipped instead, with employers adding 2.5 million jobs, after more than 20 million jobs were lost in April. | |
| Mass protests against police brutality that have brought thousands of people onto the streets in cities across America are raising the specter of new coronavirus outbreaks, prompting political leaders, physicians and public health experts to warn that the crowds could cause a surge in cases. While many political leaders affirmed the right of protesters to express themselves, they urged the demonstrators to wear face masks and maintain social distancing, both to protect themselves and to prevent further community spread of the virus. Some infectious disease experts were reassured by the fact that the protests were held outdoors, saying the open air settings could mitigate the risk of transmission. | Mass protests against police brutality that have brought thousands of people onto the streets in cities across America are raising the specter of new coronavirus outbreaks, prompting political leaders, physicians and public health experts to warn that the crowds could cause a surge in cases. While many political leaders affirmed the right of protesters to express themselves, they urged the demonstrators to wear face masks and maintain social distancing, both to protect themselves and to prevent further community spread of the virus. Some infectious disease experts were reassured by the fact that the protests were held outdoors, saying the open air settings could mitigate the risk of transmission. |
| Exercise researchers and physicians have some blunt advice for those of us aiming to return to regular exercise now: Start slowly and then rev up your workouts, also slowly. American adults tended to be about 12 percent less active after the stay-at-home mandates began in March than they were in January. But there are steps you can take to ease your way back into regular exercise safely. First, “start at no more than 50 percent of the exercise you were doing before Covid,” says Dr. Monica Rho, the chief of musculoskeletal medicine at the Shirley Ryan AbilityLab in Chicago. Thread in some preparatory squats, too, she advises. “When you haven’t been exercising, you lose muscle mass.” Expect some muscle twinges after these preliminary, post-lockdown sessions, especially a day or two later. But sudden or increasing pain during exercise is a clarion call to stop and return home. | Exercise researchers and physicians have some blunt advice for those of us aiming to return to regular exercise now: Start slowly and then rev up your workouts, also slowly. American adults tended to be about 12 percent less active after the stay-at-home mandates began in March than they were in January. But there are steps you can take to ease your way back into regular exercise safely. First, “start at no more than 50 percent of the exercise you were doing before Covid,” says Dr. Monica Rho, the chief of musculoskeletal medicine at the Shirley Ryan AbilityLab in Chicago. Thread in some preparatory squats, too, she advises. “When you haven’t been exercising, you lose muscle mass.” Expect some muscle twinges after these preliminary, post-lockdown sessions, especially a day or two later. But sudden or increasing pain during exercise is a clarion call to stop and return home. |
| States are reopening bit by bit. This means that more public spaces are available for use and more and more businesses are being allowed to open again. The federal government is largely leaving the decision up to states, and some state leaders are leaving the decision up to local authorities. Even if you aren’t being told to stay at home, it’s still a good idea to limit trips outside and your interaction with other people. | States are reopening bit by bit. This means that more public spaces are available for use and more and more businesses are being allowed to open again. The federal government is largely leaving the decision up to states, and some state leaders are leaving the decision up to local authorities. Even if you aren’t being told to stay at home, it’s still a good idea to limit trips outside and your interaction with other people. |
| Touching contaminated objects and then infecting ourselves with the germs is not typically how the virus spreads. But it can happen. A number of studies of flu, rhinovirus, coronavirus and other microbes have shown that respiratory illnesses, including the new coronavirus, can spread by touching contaminated surfaces, particularly in places like day care centers, offices and hospitals. But a long chain of events has to happen for the disease to spread that way. The best way to protect yourself from coronavirus — whether it’s surface transmission or close human contact — is still social distancing, washing your hands, not touching your face and wearing masks. | Touching contaminated objects and then infecting ourselves with the germs is not typically how the virus spreads. But it can happen. A number of studies of flu, rhinovirus, coronavirus and other microbes have shown that respiratory illnesses, including the new coronavirus, can spread by touching contaminated surfaces, particularly in places like day care centers, offices and hospitals. But a long chain of events has to happen for the disease to spread that way. The best way to protect yourself from coronavirus — whether it’s surface transmission or close human contact — is still social distancing, washing your hands, not touching your face and wearing masks. |
| Common symptoms include fever, a dry cough, fatigue and difficulty breathing or shortness of breath. Some of these symptoms overlap with those of the flu, making detection difficult, but runny noses and stuffy sinuses are less common. The C.D.C. has also added chills, muscle pain, sore throat, headache and a new loss of the sense of taste or smell as symptoms to look out for. Most people fall ill five to seven days after exposure, but symptoms may appear in as few as two days or as many as 14 days. | Common symptoms include fever, a dry cough, fatigue and difficulty breathing or shortness of breath. Some of these symptoms overlap with those of the flu, making detection difficult, but runny noses and stuffy sinuses are less common. The C.D.C. has also added chills, muscle pain, sore throat, headache and a new loss of the sense of taste or smell as symptoms to look out for. Most people fall ill five to seven days after exposure, but symptoms may appear in as few as two days or as many as 14 days. |
| If air travel is unavoidable, there are some steps you can take to protect yourself. Most important: Wash your hands often, and stop touching your face. If possible, choose a window seat. A study from Emory University found that during flu season, the safest place to sit on a plane is by a window, as people sitting in window seats had less contact with potentially sick people. Disinfect hard surfaces. When you get to your seat and your hands are clean, use disinfecting wipes to clean the hard surfaces at your seat like the head and arm rest, the seatbelt buckle, the remote, screen, seat back pocket and the tray table. If the seat is hard and nonporous or leather or pleather, you can wipe that down, too. (Using wipes on upholstered seats could lead to a wet seat and spreading of germs rather than killing them.) | If air travel is unavoidable, there are some steps you can take to protect yourself. Most important: Wash your hands often, and stop touching your face. If possible, choose a window seat. A study from Emory University found that during flu season, the safest place to sit on a plane is by a window, as people sitting in window seats had less contact with potentially sick people. Disinfect hard surfaces. When you get to your seat and your hands are clean, use disinfecting wipes to clean the hard surfaces at your seat like the head and arm rest, the seatbelt buckle, the remote, screen, seat back pocket and the tray table. If the seat is hard and nonporous or leather or pleather, you can wipe that down, too. (Using wipes on upholstered seats could lead to a wet seat and spreading of germs rather than killing them.) |
| Taking one’s temperature to look for signs of fever is not as easy as it sounds, as “normal” temperature numbers can vary, but generally, keep an eye out for a temperature of 100.5 degrees Fahrenheit or higher. If you don’t have a thermometer (they can be pricey these days), there are other ways to figure out if you have a fever, or are at risk of Covid-19 complications. | Taking one’s temperature to look for signs of fever is not as easy as it sounds, as “normal” temperature numbers can vary, but generally, keep an eye out for a temperature of 100.5 degrees Fahrenheit or higher. If you don’t have a thermometer (they can be pricey these days), there are other ways to figure out if you have a fever, or are at risk of Covid-19 complications. |
| The C.D.C. has recommended that all Americans wear cloth masks if they go out in public. This is a shift in federal guidance reflecting new concerns that the coronavirus is being spread by infected people who have no symptoms. Until now, the C.D.C., like the W.H.O., has advised that ordinary people don’t need to wear masks unless they are sick and coughing. Part of the reason was to preserve medical-grade masks for health care workers who desperately need them at a time when they are in continuously short supply. Masks don’t replace hand washing and social distancing. | The C.D.C. has recommended that all Americans wear cloth masks if they go out in public. This is a shift in federal guidance reflecting new concerns that the coronavirus is being spread by infected people who have no symptoms. Until now, the C.D.C., like the W.H.O., has advised that ordinary people don’t need to wear masks unless they are sick and coughing. Part of the reason was to preserve medical-grade masks for health care workers who desperately need them at a time when they are in continuously short supply. Masks don’t replace hand washing and social distancing. |
| If you’ve been exposed to the coronavirus or think you have, and have a fever or symptoms like a cough or difficulty breathing, call a doctor. They should give you advice on whether you should be tested, how to get tested, and how to seek medical treatment without potentially infecting or exposing others. | If you’ve been exposed to the coronavirus or think you have, and have a fever or symptoms like a cough or difficulty breathing, call a doctor. They should give you advice on whether you should be tested, how to get tested, and how to seek medical treatment without potentially infecting or exposing others. |
| If you’re sick and you think you’ve been exposed to the new coronavirus, the C.D.C. recommends that you call your healthcare provider and explain your symptoms and fears. They will decide if you need to be tested. Keep in mind that there’s a chance — because of a lack of testing kits or because you’re asymptomatic, for instance — you won’t be able to get tested. | If you’re sick and you think you’ve been exposed to the new coronavirus, the C.D.C. recommends that you call your healthcare provider and explain your symptoms and fears. They will decide if you need to be tested. Keep in mind that there’s a chance — because of a lack of testing kits or because you’re asymptomatic, for instance — you won’t be able to get tested. |
| Buying other asset classes would require opening legislation that empowers the Fed, as Mr. Rosengren noted. Central bankers have long been loath to suggest such a move, out of fear that it would endanger the Fed’s prized independence from partisan fighting. | Buying other asset classes would require opening legislation that empowers the Fed, as Mr. Rosengren noted. Central bankers have long been loath to suggest such a move, out of fear that it would endanger the Fed’s prized independence from partisan fighting. |
| Short of Mr. Rosengren’s dramatic — and potentially unpalatable — suggestion, officials could potentially buy short-term municipal bonds, but doing so could amount to financing local governments. It can cut rates to zero, but officials have been fairly united in arguing that negative rates, used in Japan and parts of Europe, probably would not work well in the United States. | Short of Mr. Rosengren’s dramatic — and potentially unpalatable — suggestion, officials could potentially buy short-term municipal bonds, but doing so could amount to financing local governments. It can cut rates to zero, but officials have been fairly united in arguing that negative rates, used in Japan and parts of Europe, probably would not work well in the United States. |
| And it could make targeted loans to businesses, as it did for Bear Stearns and American International Group during the financial crisis, though its powers in that arena have been curbed. The Fed could potentially still open loans to a broader set of companies, Michael Feroli, chief U.S. economist at JPMorgan Chase, said in an interview. | And it could make targeted loans to businesses, as it did for Bear Stearns and American International Group during the financial crisis, though its powers in that arena have been curbed. The Fed could potentially still open loans to a broader set of companies, Michael Feroli, chief U.S. economist at JPMorgan Chase, said in an interview. |
| Officials are alert to both the coronavirus threat and their limited power. John C. Williams, president of the influential Federal Reserve Bank of New York, called the coronavirus a “very uncertain and quickly evolving situation” on Friday. | Officials are alert to both the coronavirus threat and their limited power. John C. Williams, president of the influential Federal Reserve Bank of New York, called the coronavirus a “very uncertain and quickly evolving situation” on Friday. |
| “Heightened uncertainty can cause people to pull back from investments,” he said. “It’s not a purely supply shock.” | “Heightened uncertainty can cause people to pull back from investments,” he said. “It’s not a purely supply shock.” |
| And while public health officials and, potentially, fiscal policy have an important role to play, he and his colleagues also have a job to do, Mr. Williams said. | And while public health officials and, potentially, fiscal policy have an important role to play, he and his colleagues also have a job to do, Mr. Williams said. |
| That may require not only a quick response, like the one Mr. Powell has already pursued, but a creative one. | That may require not only a quick response, like the one Mr. Powell has already pursued, but a creative one. |
| In coming years, “vision and boldness will be needed by all policymakers if we have to consider how policy should react to any large, adverse shock to the economy,” Mr. Rosengren said Friday. | In coming years, “vision and boldness will be needed by all policymakers if we have to consider how policy should react to any large, adverse shock to the economy,” Mr. Rosengren said Friday. |