Fed working to bolster credit during ‘self-mandated’ recession: Kaplan

A raft of programmes from the US central bank and a US$2 tril (RM8.69 tril) rescue bill nearing approval in Congress are aimed at providing relief during a “self-mandated” recession “so that when the virus is defeated we can walk, we can run, and then we can sprint out of this,” Dallas Federal Reserve bank President Robert Kaplan said on Friday.

But that road to recovery, he signalled in an interview, may be difficult.

Kaplan said he expects US GDP to drop steeply next quarter and the unemployment rate to rise to the low- to mid-teens before falling to around 7% to 8% by year-end. That’s about double what the unemployment rate was before the virus struck, and could mean millions of Americans out of work for long periods.

Some small businesses may fold and larger businesses may need to resize, Kaplan said. Meanwhile, consumers may emerge from this period more cautious and less inclined to spend money, he said.

“We are going to climb out of this, it’s just a question of how fast do we go,” he said.

For now, he said, small businesses can expect to be able to borrow money backstopped by the Fed “very quickly” under a new programme aimed at bolstering firms hurt by the coronavirus epidemic.

Under the new Main Street lending programme, the Fed would likely provide credit support to commercial banks so they can lend to small businesses, he said.

“You can be sure that we are working furiously here at the Fed to have this in place and work out the details. And you can have confidence that we are going to do that,” he said.

The programme is one of several the Fed has rolled out or plans to that are designed to keep credit moving and financial markets functioning as large parts of the US economy shut down to slow the virus’ spread.

In a separate interview, Atlanta Fed president Raphael Bostic said he will be looking at consumer confidence to gauge the likely trajectory of the economy.

“Hopefully all the things we are doing today will give people some confidence and that confidence will carry through to the recovery period,” Bostic added. – March 27, 2020, Reuters

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