In a Nutshell:  “The Committee expects to maintain this target range until it is confident that the economy has weathered recent events and is on track to achieve its maximum employment and price stability goals.”

Decision: Fed funds rate target range remains at 0% to 0.25%.

The Federal Reserve, as expected, kept interest rates at the lowest positive level possible.  But under the circumstances, the latest FOMC meeting was largely irrelevant.  What the Fed has done and will do on a daily basis is what we need to know about and we heard a lot about those actions during Chair Powell’s first ever remote press conference. 

The Fed Chair made one thing clear:  Within legal limits, the Fed will do whatever it can, for how long it needs to.  He reminded everyone that the Fed has essentially an unlimited amount of money to buy assets – and it intends to write that check.  He made it clear that more needs to be done and the Fed will do what it can.

But it is the lending to businesses issue that is raising the greatest concern.  This is an area the Fed hasn’t gotten into before.  The Fed has limitations on the risk it can take and it is expected to lend (indirectly) to those who can repay the loans.  That is somewhat like the old saying that banks lend to those who don’t need it while those who do cannot get loans.  Mr. Powell pushed the risk issue back to the Treasury Secretary, who has to make the determination how much the Fed can lose, which it will as it is backing loans.  But Mr. Powell seemed unconcerned about the fears that major firms (read Wall Street) will benefit while Main Street, which bears the name of the lending program, will not be helped – as usual.  His point was that he has to get funds out to companies that need it and the potential costs of being too careful far outweigh the gains from doing too much. 

Finally, the Fed Chair reminded everyone that the Fed can keep rates low and can lend money, but it cannot give households and businesses grants and it cannot make businesses and household spend.  He indicated that fiscal policy makers need to take the same view that budget deficits be damned, full spending speed ahead.  And this is correct.  The Fed can do only so much.  It needs Congress to keep going.  But Congress cannot just put together packages that sound good, but as we have seen already, don’t necessarily accomplish much. 

 (The next FOMC meeting is June 9,10 2020.)