With interest rates close to zero, what more could the U.S. central bank do if the economy needs a boost?
In the current circumstances, the Fed can’t do as much as congressional lawmakers and public-health officials, Chicago Fed President Charles Evans said Tuesday.
“This is a public health safety shock. This is a lot about confidence of consumers, households and businesses being able to go out and do commerce. We really need fiscal and public health authorities to be supporting and improving the economic environment,” Evans said during a talk sponsored by the Detroit Economic Club.
The Fed is already buying $120 billion of Treasurys and mortgage-related debt per month to support financial markets and the economy. That’s a larger pace than during the financial crisis.
The Fed could eventually decide to buy more assets, Evans said. But the other government actions are more important, he said.
“This is kind of countercultural,” Evans said, because monetary policy makers don’t often say fiscal policy is so important, the Chicago Fed president said.
Fed officials will meet on Nov. 4-5, right after the presidential election, to set monetary policy. Some experts think the Fed might decide to concentrate their Treasury purchases at the long-end of the curve.
The outcome of the ongoing talks between Speaker Nancy Pelosi and Treasury Secretary Steven Mnuchin on another stimulus bill may play a role in any decision.
Earlier this month, Fed Chairman Jerome Powell told lawmakers that the risk of doing too little to help the economy was larger than the risk of doing too much.
Stocks were higher on Tuesday on hopes of a fiscal stimulus agreement. The Dow Jones Industrial Average /zigman2/quotes/210598065/realtime DJIA -0.58% was up 278 points.