April 30, 2020

The Fed highlights the priorities and limits of its action

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In Short

In the April meeting chair Powell reiterated the priorities of the Fed. The press release presented an assessment on the fallout of crisis, which was more downbeat than in March, highlighting the “considerable risks” for the medium term outlook of the economy.
The Fed highlights the priorities and limits of its action
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HIGHLIGHTS:

  • The Fed signaled a worse economic outlook than in March, flagging the risk of a subdued recovery and high medium term uncertainties.
  • The current measures are for the time being adequate and are reducing market stress. Rates will remain near zero until the economy is back on track. Credit provision will need to be scaled up. No new measures were announced.
  • Chair Powell underlined that the Fed acts via lending only and spending powers are with the Congress. Fiscal policy will need to avoid unnecessary insolvencies and long-term unemployment. Debt sustainability will become an issue once the crisis is over.
  • The disconnect between financial asset prices and the economy is currently not a concern. What matters is that financial markets are functioning.

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THE FED HIGHLIGHTS THE PRIORITIES AND LIMITS OF ITS ACTION

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