Fed COVID-19 Recession Lessons
On Jun. 30, Fed (Chicago), Fed (NY) issued COVID-19 information.
- Chicago Fed released a letter by authors, Amromin, Dokko, Dyna, entitled Helping Homeowners During the Covid-19 Pandemic: Lessons from the Great Recession.
- In this Chicago Fed letter, the authors explored lessons from policymakers’ efforts to provide assistance to homeowners during the Great Recession period of 2007 to 2009.
- Their goal is to provide insights into the potential role of policy in improving outcomes for mortgage borrowers during the Covid-19 crisis, resulting in 3 broad conclusions.
- Additionally, NY Fed released remarks given by John Williams, president and CEO, at the institute of international finance: central banking in the age of COVID-19 summit.
- Chicago Fed Letter Conclusions
- Sharp decline in economic activity in US following onset of Covid-19 is unprecedented.
- There is a growing consensus that structural damage to economy could substantially prolong the downturn as well as hinder economy’s return to more normal conditions.
- Policies to assist homeowners struggling to make mortgage payments might help cushion impact of downturn, reduce spillovers to financial system, broader economy.
- High degree of uncertainty surrounds timing, speed, magnitude of economic recovery.
- Type of assistance to mortgage borrowers must correspond to economic shock nature.
- Payment relief more effective for struggling mortgage borrower than debt forgiveness.
- Great Recession programs that provided modest long-term reductions in payments not likely to be solution in current circumstances calling for quick, sizable liquidity support.
- The design of payment relief that is implemented should be simple for borrowers to be able to understand, as well as straightforward for financial institutions to implement.
- Broader policy actions, such as monetary policy, enhancements to social safety net programs, important for maintaining households financial resilience in weak economy.
- NY Fed John Williams Remarks
- Williams discussed the current state of the U.S. economy, Fed goals for the recovery, and how the Federal Reserve is responding to the worst recession in living memory.
- Economic effects of coronavirus have caused great hardship, and created uncertainty.
- The root of this downturn, a global pandemic, means that this is a completely different kind of recession compared to anything that has been experienced here in the past.
- The virus will continue to be at center stage throughout the related economic recovery.
- Unemployment rate reached nearly 15% in Apr., about 20mn Americans lost their jobs.
- Black and Hispanic families, as well as lower-wage workers, have suffered the most.
- One unique thing about this recession is lightning speed of events, and data indicates we've likely seen low point of the downturn, overall economy has begun to recover.
- NY Fed Policy Responses
- Unique nature means that policy responses, public health, fiscal, and by the Fed, need to be designed to reflect nature of the pandemic and challenges it poses to economy.
- Fast, significant action by Fed to stabilize financial system, support credit flow, position the economy for strong, sustained return to maximum employment and price stability.
- FOMC has indicated that it expects to keep interest rates near 0 until it is confident the economy is on track to achieve its maximum employment and price stability goals.
- Large-scale repo operations conducted by Fed, and purchase of large quantity of US Treasury securities, agency mortgage-backed securities to support market functioning.
- These actions performed by the Fed averted a potential shutdown in the availability of credit, which would have made the current economic crisis even more severe.
- Fed has indicated it will continue increasing asset holdings to sustain smooth market functioning, for effective monetary policy transmission to broader financial conditions.
- Pandemic and recession form a pivotal moment for Fed, which has been seeing signs that economy has started to recover, however the outlook remains highly uncertain.
- It will take considerable time to restore economy to full potential, but Fed is committed to using full range of tools to support economy and bring about a full, robust recovery.
||Bank; CU; Thrift
||PR, Sp, Lt No. 443, 6/30/2020
||C-Suite; Financial; Reporting; Risk; Treasury
||United States of America
||Banking; Corporate; Loan; Mortgage; Repo/Reverse; Securities
|Reg. Last Update
Last substantive update on 07/01/2020