It’s too early to be making assessments of how to avoid a financial shock such as that caused by the coronavirus crisis – “we’re still putting out the fire,” the Federal Reserve Board chair said Wednesday – but there will, no doubt, be an assessment once the crisis is past.
In a press conference following the release of the Fed’s latest decision on interest rates – which is to hold the line on a range of 0% to 0.25% for the federal funds target rate – Board Chair Jerome H. (“Jay”) Powell said the crisis is an extraordinary shock, unlike anything he has seen in his lifetime. However, he told reporters that the time will come to be considering questions about how to prevent a shock in the future.
“It’s still too early to be asking them; we’re still putting out the fire, we’re still trying to win,” said, referring to the virus pandemic. “And I think we’ll be at that for a while.”
Powell indicated that the Fed’s past actions to strengthen banks through greater capital requirements and building a better sense of risk within the banking system and how to manage those risks (among other things) have proved to maintain a strong banking system.
“The breakdown we have seen in market function have been in the capital markets,” he said, “and I wouldn’t rush in with prudential regulation of the capital markets.”
However, he said, the size and force of pandemic financial shock “will no doubt reveal weaknesses in the financial architecture, and we’ll have to go to work on those.”
Powell also noted that the crisis has revealed the importance of getting the nation’s fiscal house in order. He said the nation has the fiscal capacity to deal with the crisis, but an unexpected shock such as this – ideally – calls for the country to have a much stronger fiscal position before it faces the shock.
Earlier in the press conference, however, Powell said now is the not the time to act on fiscal concerns. “That time will come and reasonably soon,” Powell said. But this is not the time to let that concern get in the way of winning the battle.”