Federal Reserve Chairman Jerome Powell expressed his conviction that Fed is ready to fight next recession with massive easing of monetary policy
In testimony before the Senate Banking Committee on Wednesday, Powell said the Fed had two tools to fight recession – buying government bonds (QE), and quantitative release and clear communication with markets about interest-rate policy. “We will use those tools. I am sure that we will use them aggressively if necessary,” Powell said.
Up until now, American Central bank mostly relied on interest rates decrease as a fight against recession. It was no exception that 5 percentage points drop appeared during such a short time. But it’s impossible now as the Fed’s benchmark rate is currently in a range of 1.5%-1.75%. “We don’t have enough room to cut,” Powell added.
If Fed interest rates trim closer to zero, Central bankers would have to use similar tools as during financial crisis 2008 and 2009 – government bonds purchase and forward communication on interest policy.