- Jerome Powell says the Federal Reserve is “not out of ammunition by a long shot.”
- The Federal Reserve balance sheet approaches $7 trillion.
During a recent 60 Minutes segment, Jerome Powell, the Chair of the Federal Reserve, talks about the current economy and the Federal Reserve’s future role. This comes as the Federal Reserve’s balance sheet is now an unprecedented $6.9 trillion.
“not out of ammunition”
Well, there’s a lot more we can do. We’ve done what we can as we go. But I will say that we’re not out of ammunition by a long shot. No, there’s really no limit to what we can do with these lending programs that we have.Jerome Powell (Chair of the U.S Federal Reserve)
Following a question on whether the Federal Reserve has reached its capacity, Powell responds that the Fed can do more and there is not limited in terms of its lending programs.
Late last month during a virtual press conference, Powell said that “we won’t run out of money”
Increased Federal Spending
While the lending programs offer relief to small businesses and individuals affected by the economic fallout due to COVID-19, many voice concerns over the federal government spending trillions amid the virus. However, Powell kept consistent with earlier responses, noting that while the growing debt is an issue, it is not the first priority given the current situation.
Well, if you take a longer perspective, the U.S. has been spending more than it’s been taking in for some time. And that’s something we’re going to have to deal with. The time to deal with that, the time to get on a sustainable fiscal path, which really just means that the economy is growing faster than the debt, and that means you’ve got to control the growth of the debt — the time to do that is when the economy is strong. When unemployment is low, when economic activity is high, that’s when you deal with that problem. This is not the time to prioritize that concern.Jerome Powell (Chair of the U.S Federal Reserve)
Powell furthers by stating “[i]t is true that deficits are going to be big for a couple of years here”, raising concerns over the inflation of the US dollar. With that said, Powell believes the US should combat the growing deficit once the economy recovers.
Printing Digital Money
During the interview, Powell also briefly outlines quantitative easing (QE) in a response to a question asking how the Federal Reserve is adding new money to the economy.
We print it digitally. So as a central bank, we have the ability to create money digitally. And we do that by buying Treasury Bills or bonds for other government guaranteed securities. And that actually increases the money supply. We also print actual currency and we distribute that through the Federal Reserve banks.Jerome Powell (Chair of the U.S Federal Reserve)
Quantitative easing allows the Federal Reserve to interject money into the economy quickly and at a massive scale. During the Financial Crisis of 2008, the Federal Reserve’s balance sheet surged during a period of quantitative easing. The balance sheet has already surged almost $2.7 trillion since January.
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