Friday, June 19, 2020

Fed

‘There’s Probably Never Been More Uncertainty,’ Fed Official Warns - The New York Times

‘There’s Probably Never Been More Uncertainty,’ Fed Official Warns

Federal Reserve policymakers underlined economic risks, yet the central bank’s point man on supervision suggested regulators will not disclose how specific banks might fare.

Credit...Erin Scott/Reuters


WASHINGTON — Federal Reserve officials on Friday warned that the U.S. economic outlook remains wildly uncertain, as parts of the country see a new surge in coronavirus infections.

“So far, in the United States efforts to contain the virus have not been particularly successful,” Eric Rosengren, president of the Federal Reserve Bank of Boston, said in a speech on Friday. With the spread of the disease continuing “and the acceleration of new cases in many states, I expect the economic rebound in the second half of the year to be less than was hoped for at the outset of the pandemic.”

But while the downturn could persist — or worsen — the central bank’s vice chair for supervision, Randal K. Quarles, said the Fed would determine capital requirements — essentially the financial cushions they must keep to withstand losses — based on economic scenarios developed before the pandemic took hold. While the Fed is testing the strength of banks against multiple dire scenarios that reflect how the virus might play out, the central bank will not publish bank-specific results.

“We don’t know about the pace of reopening, how consumers will behave or the prospects for a new round of containment,” Mr. Quarles said. “There’s probably never been more uncertainty about the economic outlook.”

Given the serious risks, the Fed’s annual “stress tests,” the results of which will be released next week, will include three sensitivity analysis scenarios. These would look at how the banking system would fare in the case of a V-shaped recovery, in which output and employment bounce back quickly; a U-shaped rebound, in which jobs and growth take a long time to recover; or a W-shaped trajectory, in which a second wave of the coronavirus forces activity to collapse again, Mr. Quarles said.

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Those scenarios could influence whether individual banks are allowed to pay out shareholder dividends down the road. But they will not result in different capital requirements for the supervised banks, even if the Fed finds a bank would not be able to withstand losses and continue to lend under one of the more dramatic scenarios.

The Fed will “provide results aggregated across banks that will compare how the banking system as a whole would fare under the three distinct views of the future,” Mr. Quarles said. He noted that given time constraints, the central bank did not pre-publish the three scenarios or run full stress tests with them.

Mr. Quarles noted that the Fed has generally seen “value” in “not increasing capital requirements under stress and thus exacerbating a downturn” when it approaches stress testing.

Even so, the decisions to stick with the pre-pandemic scenario, and to release the sensitivity tests only in aggregate, struck some as potentially irresponsible. Banks are expected to play a critical role in the downturn, and there is a complete lack of clarity about how the United States economy will fare over the next several months.

The Fed’s originally published February 2020 scenario — upon which the so-called “stress capital buffer” requirement will be based — is similar in “overall severity” to the most optimistic, V-shaped sensitivity analysis, Mr. Quarles said.

“You’re likely to get a smaller stress capital buffer using the February scenario,” said Jeremy Kress, a former Fed regulator who is now at the University of Michigan. He also said that the fact that bank-by-bank results from the scenarios will not be released “makes me nervous about what they found.”

Banks came into this crisis with much higher levels of capital than they had headed into the 2007-09 downturn, and in better positions than many of their counterparts overseas. Despite that, the pandemic crisis is an economic emergency without precedent, making it difficult to predict exactly how the financial system will fare.

The Fed has taken a number of actions to ensure that lending continues and credit does not become prohibitively expensive, relaxing some regulations while rolling out a variety of emergency programs, including several that buy loans to qualifying small- and medium-sized businesses from bank balance sheets.

Even so, central bank officials have repeatedly warned that both they and Congress may need to do more to make sure the economy can recover as massive risks persist.

The Coronavirus Outbreak

  • Frequently Asked Questions and Advice

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    • I’ve heard about a treatment called dexamethasone. Does it work?

      The steroid, dexamethasone, is the first treatment shown to reduce mortality in severely ill patients, according to scientists in Britain. The drug appears to reduce inflammation caused by the immune system, protecting the tissues. In the study, dexamethasone reduced deaths of patients on ventilators by one-third, and deaths of patients on oxygen by one-fifth.

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      The coronavirus emergency relief package gives many American workers paid leave if they need to take time off because of the virus. It gives qualified workers two weeks of paid sick leave if they are ill, quarantined or seeking diagnosis or preventive care for coronavirus, or if they are caring for sick family members. It gives 12 weeks of paid leave to people caring for children whose schools are closed or whose child care provider is unavailable because of the coronavirus. It is the first time the United States has had widespread federally mandated paid leave, and includes people who don’t typically get such benefits, like part-time and gig economy workers. But the measure excludes at least half of private-sector workers, including those at the country’s largest employers, and gives small employers significant leeway to deny leave.

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      So far, the evidence seems to show it does. A widely cited paper published in April suggests that people are most infectious about two days before the onset of coronavirus symptoms and estimated that 44 percent of new infections were a result of transmission from people who were not yet showing symptoms. Recently, a top expert at the World Health Organization stated that transmission of the coronavirus by people who did not have symptoms was “very rare,” but she later walked back that statement.

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      Touching contaminated objects and then infecting ourselves with the germs is not typically how the virus spreads. But it can happen. A number of studies of flu, rhinovirus, coronavirus and other microbes have shown that respiratory illnesses, including the new coronavirus, can spread by touching contaminated surfaces, particularly in places like day care centers, offices and hospitals. But a long chain of events has to happen for the disease to spread that way. The best way to protect yourself from coronavirus — whether it’s surface transmission or close human contact — is still social distancing, washing your hands, not touching your face and wearing masks.

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      A study by European scientists is the first to document a strong statistical link between genetic variations and Covid-19, the illness caused by the coronavirus. Having Type A blood was linked to a 50 percent increase in the likelihood that a patient would need to get oxygen or to go on a ventilator, according to the new study.

    • How many people have lost their jobs due to coronavirus in the U.S.?

      The unemployment rate fell to 13.3 percent in May, the Labor Department said on June 5, an unexpected improvement in the nation’s job market as hiring rebounded faster than economists expected. Economists had forecast the unemployment rate to increase to as much as 20 percent, after it hit 14.7 percent in April, which was the highest since the government began keeping official statistics after World War II. But the unemployment rate dipped instead, with employers adding 2.5 million jobs, after more than 20 million jobs were lost in April.

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      Mass protests against police brutality that have brought thousands of people onto the streets in cities across America are raising the specter of new coronavirus outbreaks, prompting political leaders, physicians and public health experts to warn that the crowds could cause a surge in cases. While many political leaders affirmed the right of protesters to express themselves, they urged the demonstrators to wear face masks and maintain social distancing, both to protect themselves and to prevent further community spread of the virus. Some infectious disease experts were reassured by the fact that the protests were held outdoors, saying the open air settings could mitigate the risk of transmission.

    • My state is reopening. Is it safe to go out?

      States are reopening bit by bit. This means that more public spaces are available for use and more and more businesses are being allowed to open again. The federal government is largely leaving the decision up to states, and some state leaders are leaving the decision up to local authorities. Even if you aren’t being told to stay at home, it’s still a good idea to limit trips outside and your interaction with other people.

    • What are the symptoms of coronavirus?

      Common symptoms include fever, a dry cough, fatigue and difficulty breathing or shortness of breath. Some of these symptoms overlap with those of the flu, making detection difficult, but runny noses and stuffy sinuses are less common. The C.D.C. has also added chills, muscle pain, sore throat, headache and a new loss of the sense of taste or smell as symptoms to look out for. Most people fall ill five to seven days after exposure, but symptoms may appear in as few as two days or as many as 14 days.

    • How can I protect myself while flying?

      If air travel is unavoidable, there are some steps you can take to protect yourself. Most important: Wash your hands often, and stop touching your face. If possible, choose a window seat. A study from Emory University found that during flu season, the safest place to sit on a plane is by a window, as people sitting in window seats had less contact with potentially sick people. Disinfect hard surfaces. When you get to your seat and your hands are clean, use disinfecting wipes to clean the hard surfaces at your seat like the head and arm rest, the seatbelt buckle, the remote, screen, seat back pocket and the tray table. If the seat is hard and nonporous or leather or pleather, you can wipe that down, too. (Using wipes on upholstered seats could lead to a wet seat and spreading of germs rather than killing them.)

    • Should I wear a mask?

      The C.D.C. has recommended that all Americans wear cloth masks if they go out in public. This is a shift in federal guidance reflecting new concerns that the coronavirus is being spread by infected people who have no symptoms. Until now, the C.D.C., like the W.H.O., has advised that ordinary people don’t need to wear masks unless they are sick and coughing. Part of the reason was to preserve medical-grade masks for health care workers who desperately need them at a time when they are in continuously short supply. Masks don’t replace hand washing and social distancing.

    • What should I do if I feel sick?

      If you’ve been exposed to the coronavirus or think you have, and have a fever or symptoms like a cough or difficulty breathing, call a doctor. They should give you advice on whether you should be tested, how to get tested, and how to seek medical treatment without potentially infecting or exposing others.

“Lives and livelihoods have been lost, and uncertainty looms large,” Fed Chair Jerome H. Powell said in remarks prepared for delivery Friday afternoon. “We will make our way back from this, but it will take time and work,” he said, noting that “the path ahead is likely to be challenging.”

Mr. Rosengren was even starker in his warnings. He pointed out that coronavirus cases in South Carolina and Florida are rising, and offered a glum outlook for unemployment, which he said is likely to remain “in double digits” through the end of 2020. It stood at 13.3 percent in May, higher than at any point in the Great Recession.

While May’s employment report was better than expected, Mr. Rosengren said that might have stemmed from states reopening earlier than epidemiologists had recommended.

“This lack of containment could ultimately lead to a need for more prolonged shutdowns, which result in reduced consumption and investment, and higher unemployment,” he said.

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