WASHINGTON — Jerome H. Powell, the chair of the Federal Reserve, said central bankers had seen the need to use their tools “to their fullest extent” as coronavirus lockdowns shuttered economies around the globe and caused United States unemployment to soar.
“We felt called to do what we could,” Mr. Powell said Friday during a Princeton University webinar.
“We crossed a lot of red lines, that had not been crossed before,” he said. He added that he was comfortable with what the Fed had done given “this is that situation in which you do that, and you figure it out afterward.”
The Fed has taken a variety of actions to support the economy: cutting interest rates to near-zero, rolling out unlimited bond purchases to soothe markets and initiating emergency lending programs to keep credit flowing to businesses and state governments.
Several of those efforts tiptoe into untested territory for the central bank, including programs that lend to medium-sized businesses, buy corporate bonds and purchase debt from states and large cities.
“We work very hard to explain ourselves to the general public,” Mr. Powell said, explaining that the Fed is disclosing information on its lending efforts, and discussing them regularly with lawmakers.
The programs come at a time of dire need. Economists are bracing for a deep plunge in economic output in the second quarter, which runs from April through June, and most predict only a gradual recovery over the remainder of the year. It could be months or years before output returns to its pre-crisis level, and the unemployment rate falls to the 50-year lows that prevailed before the coronavirus lockdowns precipitated a wave of layoffs.
More than 40 million people, about one of every four American workers, have filed for unemployment benefits since mid-March, based on data released this week. A report next Friday is expected to show that the unemployment rate jumped to 19.5 percent in May, based on the median estimate in a Bloomberg survey of economists.
Mr. Powell noted that the “burdens” of job loss are falling on those least able to bear them, in lower-paid service work, exacerbating economic inequalities.
“Those are the people being laid off, who have the least financial resources,” Mr. Powell said. “It’s falling on women to an extraordinary degree,” and “there’s tremendous inequality” in how the pandemic is affecting the population.
He also voiced concern that if a second round of virus infections hits America, it could lead to a more delayed economic rebound.
“A second wave would really undermine public confidence, and might make for a significantly longer recovery, and weaker recovery,” he said, after explaining that “a full recovery of the economy will really depend on people being confident that it’s safe to go out.”
While Mr. Powell stressed the Fed’s willingness to act when it comes to emergency lending, he reiterated that the central bank is not looking to cut interest rates into negative territory, something central banks abroad have done in an effort to stimulate their economies.
“Central bankers and economists have been working on the problem of, what can central bankers do when they hit zero,” Mr. Powell said. “The evidence on whether it actually helps is pretty ambiguous,” he said. “You’re crushing down on bank margins, and that makes them lend less.”
He said that Fed policies that worked during the financial crisis — holding rates near-zero and buy longer-term government-backed bonds to lower interest rates — are in the “toolbox” again.