Federal Reserve Bank President of San Francisco Mary Daly told Yahoo Finance on Tuesday the United States is already likely in a recession but committed the central bank to supporting the economy as the U.S. responds to the coronavirus.
“The Federal Reserve is prepared to do whatever it takes within our powers to ensure we are part of the solution of shoring up people over the virus, shoring up the American economy and putting us in the best position to grow again once the virus recedes,” Daly told Yahoo Finance in an exclusive interview Tuesday.
Daly oversees nine states as one of the Fed’s 12 regional bank presidents and said her district, which includes the hard hit major West Coast cities of Seattle and Los Angeles, has experienced an economic “hard stop.”
Daly said uncertainty makes it difficult to predict where unemployment and GDP growth will go, but said the economy is either in a recession or “will be.” Daly said she expects the economy to “get a little bit worse” as shelter-in-place and quarantine measures continue across the country.
“You can’t have millions of people losing their jobs and tens and thousands or workers being furloughed for an indefinite period without tipping the economy into a downturn,” Daly said.
Main Street Lending
Daly said the Fed is “doing exactly what you would want from us as public servants,” emphasizing that the central bank is turning to unprecedented tools at an unprecedented time.
Some of those tools have been the alphabet soup of liquidity facilities opened up over the past month, which have targeted liquidity strains in U.S. Treasury, U.S. dollar, municipal debt, corporate debt, and mortgage markets.
On Tuesday morning, the Fed announced a repo facility available to central banks and monetary authorities around the world, which would temporarily offer U.S. dollars in exchange for U.S. Treasuries held abroad.
The Fed’s actions are designed to offer “basic lending that is required” for a properly functioning market, Daly said.
Daly said the next big focus for the Fed is a previously-announced Main Street Business Lending Facility that would include some backing from the $454 billion in appropriations granted to the Fed from last week’s relief bill.
The central bank is still working through the details on such a program, but Daly said lending to institutions that cannot access Fed liquidity facilities or Small Business Administration loans is “a part of Main Street that still needs to be treated.”
With the Fed having slashed interest rates to zero, President Donald Trump tweeted on Tuesday that he would like to take advantage of low rates and invest in an infrastructure bill.
With interest rates for the United States being at ZERO, this is the time to do our decades long awaited Infrastructure Bill. It should be VERY BIG & BOLD, Two Trillion Dollars, and be focused solely on jobs and rebuilding the once great infrastructure of our Country! Phase 4— Donald J. Trump (@realDonaldTrump) March 31, 2020
Daly says she is a proponent of infrastructure spending as a way to “ensure we can grow faster going forward, adding that low rates do factor into the room that fiscal policymakers have.
“The Fed’s committed to keeping interest rates accommodative until we achieve our dual mandate goals,” Daly said. The Fed’s dual mandate consists of maximum employment and stable prices.
Broadly, Daly said the Fed will continue to use its tools to support the economy as the health response continues.
“While these actions are unprecedented, we’re not unpracticed at them,” Daly said. “We know how to do them — it’s just that the scale is much more vast.”
Brian Cheung is a reporter covering the Fed, economics, and banking for Yahoo Finance. You can follow him on Twitter @bcheungz.