Powell says U.S. Fed to aggressively use QE to combat next recession

Source: Xinhua| 2020-02-13 05:17:29|Editor: Yurou
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WASHINGTON, Feb. 12 (Xinhua) -- U.S. Federal Reserve Chair Jerome Powell said on Wednesday that the central bank would stimulate the economy by aggressively buying large amounts of government bonds, also known as quantitative easing (QE), when the next downturn hits.

"We will have less room to cut (rates). That means it is much more likely that we will have to turn to the tools that we used in the financial crisis when we hit the lower bound," Powell told lawmakers before the Senate Banking Committee.

The tools include "forward guidance, which says that we will keep rates low, and that it is also large-scale asset purchases of longer-term securities to drive longer rates down and support the economy," he explained, adding the central bank will use those tools aggressively to fight the next recession.

"I believe we will use them aggressively should the need arise to do so. There is no need to do that now but we will use those tools aggressively," he said.

Powell also stressed that "it is important for fiscal policy to be in a position as it always has been to support the economy in a downturn as well."

Traditionally, it would take interest rate cuts of around five percentage points for monetary policy to meaningfully combat an economic recession, according to economists. But that's impossible now as the Fed's benchmark federal funds rate is currently in a range of 1.5-1.75 percent.

"We're looking to make sure that in this low rate environment... we have explored every possible way to find every scrap of policy space, if you will, to be able to support the economy," Powell said.

The Fed lowered interest rates three times in 2019 amid rising concerns over trade tensions, a slowing global economy and muted inflation pressures. After wrapping up its first monetary policy meeting of 2020 in late January, the Fed left interest rates unchanged and maintained a wait-and-see stance.