A day after President Donald Trump set an April 30 deadline for reopening the U.S. economy, Federal Reserve Chairman Jerome Powell urged caution.
Speaking on a Brookings Institution webinar on Thursday, the head of the world’s most powerful central bank said the timing should be left to public health and medical experts. Trump’s latest deadline, which the president said would create a “big bang” of economic activity in May, comes after he relinquished an earlier date he set of Easter, which is this Sunday.
Reopening the economy needs to be done in a way that gives consumers and workers “confidence,” said Powell. In other words, if people think going to stores, restaurants, or offices might make them sick – and potentially infect family members amid the worst pandemic in a century – they aren’t likely to adhere to any deadline set by the federal government.
“While we all want it to happen as soon as possible, we all want to avoid a false start where we partially reopen and that results in a spike in coronavirus cases and then we have to go back again to square one,” Powell said. “I would rely on the medical experts” to decide on timing, he said.
With a COVID-19 vaccine still many months away, the resumption of economic activity shouldn’t come until the pandemic is under control, Powell said. The traditional method used by public health officials to control epidemics – used with success in South Korea to control COVID-19 – is to widely test, identify sick people, trace their contacts and test those people.
“It really depends on the path of the coronavirus – how quickly will it spread, how quickly do we get it under control, how quickly are we able to reopen the economy with confidence,” Powell said. “That means people can go back to work knowing it’s safe and businesses can reopen knowing it’s safe.”
Powell said he expects an economic rebound to begin in the third quarter, meaning the beginning of July.
“The second quarter will be a very weak one because businesses are shut down,” Powell said on the webinar. “When the virus does run its course and it’s safe to go back to work and safe for businesses to open, then we would expect there to be a very quick rebound,” Powell said. He said he expects the economy to be “robust” in the second half of the year.
Action taken by the Fed will “support the flow of credit” and provide stability to financial systems that are under stress because of the COVID-19 pandemic Powell said.
“We’ve used our tools to keep the financial markets functioning,” Powell said.
The central bank is watching the mortgage markets, Powell said. For now, that means continuing the “unlimited” purchases of bonds the Fed announced on March 23.
“The mortgage market is at the very center of our economy and very important for the real economy,” Powell said. “That’s why we bought so many mortgage-backed securities at an historically aggressive pace over the last few weeks. That market is now functioning more properly.”
The Fed also has its eyes on mortgage servicers who will be hit with forbearance requests from people who lost jobs in the last few weeks, Powell said.
He didn’t announce any specific actions the central bank might take if servicers struggle with the requirement to advance interest payments to bondholders while homeowners aren’t paying their mortgages.
Federal Housing Finance Agency Director Mark Calabria on Tuesday told HousingWire the government might transfer servicing of Fannie Mae and Freddie Mac loans – which account for more than half of the nation’s outstanding $11 trillion of mortgages – to better-capitalized companies if less-liquid firms are struggling.
“We’re watching carefully the situation with the mortgage servicers,” Powell said, responding to a question on the webinar. “We certainly have our eyes on that as a key market that does support households and consumer spending which is 70% of the economy, so we will be watching that carefully.”