Fed’s Powell: “Had to do More”; Trump Happy

White House Watch takes a look at the latest US response to the Covid-19 crisis.

The economic and financial response to the virus crisis took a giant step Sunday, a 100bp Federal Reserve rate cut to near zero, while the health care response was considerably less impressive, with disease testing still far short of what’s needed.

But even with the dramatic surprise from the central bank, US stock futures plunged to “limit down,” freezing them with steep losses as the Asian markets opened to also show deep declines. Treasury security yields were sinking again after improving Friday. Oil was down more than 3%.

On the fiscal policy front, the US Senate takes up the House-passed virus response bill Monday morning with signs some Republicans have problems with it.

There was also acknowledgement during the day that even if passed, the legislation falls far short of guaranteeing all wage earners a paycheck if they are forced by illness to stay home despite the repeated promises of President Trump, Vice President Mike Pence and Treasury Secretary Steven Mnuchin.

Overall the impression left by several experts on the Sunday public affairs talk programmes as well as by the evening Corona Virus Task Force briefing was that the virus crisis is reaching a crucial point which will determine how many fatalities it ultimately causes.

As a former Trump administration FDA commissioner, Scott Gottlieb, put it on CBS’s “Face the Nation,” if there is only one “Wuhan”-like epicenter in the US hospital, medical personnel and equipment capacity will be able to cope. Two or more “Wuhans” and the medical response system will be overwhelmed and fatalities will be much greater. Which path the virus will take may be revealed as soon as somewhere around April 1.

The Fed’s full point rate cut accompanied by large open-ended additional purchases of Treasuries and mortgage-backed securities showed, Powell said in a subsequent press conference, that even massive infusions into the money markets Thursday and Friday helped somewhat but not enough.

It became clear, “We had to do more,” Powell said, and right away. So the Federal Open Market Committee decided it could not wait until its regularly scheduled meeting Tuesday and Wednesday, a meeting that now won’t happen.

The Fed’s announcement came just a few minutes before the beginning of the Corona Virus Task Force briefing at which President Trump appeared to say the move made him “very happy.” Trump as recently as Saturday had intensified his pressure on the Fed to cut rates, telling reporters he had the “right” to remove Powell as chairman.

“It makes me very happy and I want to congratulate the Federal Reserve,” Trump said. “In addition very importantly the Federal Reserve is going to be purchasing five hundred billion dollars of treasuries and two hundred billion dollars of mortgage back securities and that number can increase.”

Powell, in his news conference that followed the Task Force virus briefing, said that the renewed asset purchases are intended to help the Treasury and mortgage security markets, where yields had been going back up because of a cash crunch and it made no difference to him what it was labeled, as an aid to liquidity or the start of another bout of quantitative easing.

Powell went on to acknowledge what pushed the Fed to do a weekend rate cut that surprised the markets, that is, alarming below-the-surface money market plumbing problems.

“We saw and everyone saw that liquidity had become very strange in the Treasury and MBS markets and we decided to offer very large quantities of term and overnight repo to address that,” Powell said of Fed actions through Friday.

“The take-up was not as high as many had expected,” he continued, “and I think we did learn something from that…that we needed to go direct here rather than trying to intermediate” through dealers.

So Friday, “We bought across the curve and we bought, I think, $37 billion worth of securities,” he said, adding after the Friday repo operation, however, “We saw what happened with that. We saw that market function improved a little bit but still it wasn’t what we needed and that’s why we brought together the full FOMC and had our meeting this afternoon and announced these measures this evening.”

The full-point rate cut and increased asset purchases “are strong measures with the broad support of the committee to provide really substantial amounts of liquidity,” Powell said.

Answering another question, Powell said that the rate cut will be immediate help for borrowers in households and businesses but it will really make a difference down the road when the economy finally begins to improve.

“What will happen in the third and fourth quarters and thereafter” will “depend again on the path of the virus,” he said. “The thing we do know is that we’ll be here doing our job and supporting the flow of credit and be here to do what we can when the recovery comes to make it as vigorous as possible.”

The Fed also announced a variety of other measures, including establishing swap lines with central banks elsewhere, adjusting intraday credit, bank capital, liquidity buffers and reserve requirements. Hours after the Fed acted the Bank of Japan signalled it is holding an emergency meeting to consider its own further moves.

The Corona Virus Task Force briefing did little other than confirm that the president’s travel ban on entrants of foreigners from Europe caused the kind of massive crowding at some airports Friday and Saturday that promotes the spread of the corona virus. Americans rushed to get back home even though they had been assured they need not hurry, they were to be allowed to return at any time.

At the heart of the airport delays seemed to be too few Customs staffer to smoothly implement a new health status form the Department of Homeland Security forced returnees to fill out, along with a cursory examination, a temperature check and an explanation of the need for a two-week voluntary self-quarantine.

Acting head of the DHS, Brad Wolf, in the White House briefing, called the airport delays “unacceptable” and said average wait times by Saturday evening had been reduced to half an hour, as more TSA personnel and staff from the airlines were being deployed.

On NBC’s “Meet the Press” Illinois Governor J.B. Pritzker said he got a call around midnight from the White House complaining about his tweet that pointed out the crowding of passengers at O’Hare International Airport. Hours after those remarks Pritzker ordered all restaurants and bars in his state to close just prior to St. Patrick’s Day.

He and other talk-show guests suggested the federal government should be implementing such drastic closings throughout the nation along with a kind of war footing mobilising every government resource. The NIH’s Fauci said such measures might indeed be necessary as government works through worst-case through best-case scenarios without knowing what’s most likely.

Commenting on the worst case, former Trump administration Federal Drug Administration Commissioner Gottlieb told CBS’ “Face the Nation” that it remains to be seen whether the nation’s health-care capacity will be overrun, leading to rationing of hospital beds, respirators and ventilators. “If we do have multiple epidemics in multiple large U.S. cities the system will become overwhelmed,” Gottlieb said. “I think we can handle a Wuhan in one major US city and pulse resources into that,” he continued.

“What I worry about again is, multiple cities having that kind of an outbreak because if you don’t have enough ventilators or other equipment doctors have to start making choices about who gets what,” he added, noting that China, “did just about everything wrong leading into their lockdown. And they still were able to get control of their epidemic there.”

In the United States no one knows the scope of the spread of the virus through communities because mass testing has days to go before beginning to ramp up toward the numbers that are needed. The FDA did not clear the way for private laboratory “high throughput” automated testing until Thursday, about eight weeks after the outbreak already under way in China became apparent.

President Trump Sunday evening took no questions after his brief appearance at the top of the virus briefing, turning it over to the Task Force just as several talk show guests and commentators had suggested would be a good idea after Saturday he repeated the corona virus is “under control,” only to be contradicted by his own experts.

The Task Force has two briefings set for Monday, the next one in the morning.



Colin Lambert

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