Fed’s Daly: Ready to ‘Pivot’ to Stimulus Post-Pandemic

The Federal Reserve’s emergency relief programs will give way to stimulus and a focus on lowering unemployment whenever the coronavirus crisis has ebbed, San Francisco Fed President Mary Daly said Monday.

Speaking at a National Press Club-sponsored event and later to reporters, Daly said it would make no sense to focus on stimulus now, when much of the economy is still shut.

“The idea that we are stimulating the economy doesn’t really make sense to me,” she said. With “sheltering in place…it’s really hard to get people to do more when they’re asked to stay home”.

Meanwhile, what the Fed is “really doing is providing emergency relief to businesses and households and solving the market dislocation so that the flow of funding can go through, so that people can stay afloat essentially”.

The point of “pivot” won’t necessarily be a banner event. “As we pivot, whenever that is from the COVID world…we’ll turn from being emergency support to stimulus,” she said. “We don’t have to make some different announcements. Just naturally the weights on those two things change.”

“On the fiscal side then, I think that line is easier to draw,” she added. Then fiscal policy should be aimed at recovery investments in health infrastructure, education and digital capability.

Those kinds of investments will pay off later, she said, as the Fed places its emphasis on rebuilding the strong employment that was destroyed by the triple crises, for health, the economy and now the waves of protest.

The Fed learned both from the financial crisis and the Great Depression about how to support the economy and action came quickly, both at the Fed and on Capitol Hill.

“One of the key lessons from history is that speed of action alone isn’t enough,” she said. “Commitment to action – whatever it takes over the long term – is essential to ensuring a sustainable recovery and a return to robust growth.”

Another lesson was how long it took to rebuild employment. “And when you think about it,” she continued, “the hardest lesson from both the Great Depression and the Great Recession is it took us a decade to dig out, a decade for the economy to fully recover and for the benefits of growth to reach all those displaced by the shock.”

For her, the lesson was, “a decade is too long. We can’t wait 10 years for economic recovery to reach everyone”.

The Fed and Capitol Hill will not hesitate to pour more support into the economy if what is being done proves not to be enough, she said.

“If we find that we’re in a second wave or we find that the support hasn’t been enough my expectation is that both fiscal agents and the Federal Reserve would move to help lengthen that bridge,” Daly said.

Speaking to reporters, she said, that yield curve control can be an extension of forward guidance but in any event it “is not in my first-use toolkit”. Nevertheless, “I’m eagerly reading and looking at the research that talks about the costs and benefits.”

The day’s landmark Supreme Court ruling, affirming the right of employees not to be fired because of their sexual orientation, had a special significance for the only openly gay Fed Bank president, she said.

“It was like a sigh of relief in our household because while I have a terrific job and I have been able to get there, there are so many more individuals who live in fear and worry that they won’t keep their employment,” Daly said. “I have to say sometimes I even feel that way and so today was a great day.


Julie Ros

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