Powell says Fed crossed red lines when virus demanded action
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Powell says Fed crossed red lines when virus demanded action

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Chair of the Federal Reserve Jerome Powell testifies before the U.S. Senate Committee on Banking, Housing, and Urban Affairs at the United States Capitol on Wednesday, Feb. 12, 2020 in Washington D.C.

Chair of the Federal Reserve Jerome Powell testifies before the U.S. Senate Committee on Banking, Housing, and Urban Affairs at the United States Capitol on Wednesday, Feb. 12, 2020 in Washington D.C. (Stefani Reynolds/CNP/Abaca Press/TNS)

WASHINGTON - Federal Reserve Chairman Jerome Powell defended aggressive action to shield the economy as the coronavirus pandemic took hold and said the central bank was "days" away from launching its Main Street Lending Program.

"We crossed a lot of red lines that had not been crossed before," Powell said Friday during an online event hosted by Princeton University's Griswold Center for Economic Policy Studies. "I'm very confident that this is the situation where you do that and then you figure it out."

Powell's remarks will probably be the last from a Fed policy maker before officials enter a blackout period at midnight Friday leading up to the June 9-10 meeting of the Federal Open Market Committee. Officials are widely expected to leave interest rates just above zero at that gathering and recommit to using their full range of tools to support the U.S. economy during the coronavirus pandemic.

The Fed chair responded to questions about one of its most complex and riskiest programs intended to support the economy - the Main Street facility - which has been slow to launch. Powell said the central bank is "days away" from getting it up and running. The loan program is designed to help small and medium-sized businesses that don't have access to public markets, he said.

Main Street is one of nine Fed emergency lending programs opened or under construction that are aimed at mitigating the economic impact of the virus. The Treasury Department has sent the Fed $75 billion in funds to backstop the facility, according to a person familiar with the matter.

Powell said the announcement of Fed support alone has helped some companies secure funding in financial markets.

"They've been able to avoid big layoffs," Powell told session moderator Alan Blinder, a former Fed vice chair. "That is the point of all this. I think we have to keep our focus really tightly on that goal of the labor market and supporting the labor market."

Powell and his colleagues have warned the pandemic may leave deep and lasting scars on the economy even as the U.S. and other countries begin to emerge from lock-downs designed to limit the contagion.

More than 40 million U.S. workers have filed for unemployment benefits in the past 2 1/2 months as businesses shuttered and Americans stayed home. Data released earlier on Friday showed U.S. consumer spending, which accounts for about two-thirds of the world's largest economy, plunged in April by the most on record.

Powell said a full economic recovery "will really depend on people being confident that it's safe to go out." But he reiterated his skepticism around following other central banks in forcing rates into negative territory.

"It's just not clear to my colleagues and to me on the Federal Open Market Committee that this is a tool that would be appropriate to deploy here in the U.S.," he said. "There are clearly some negative side effects."

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(With assistance by Saleha Mohsin, Steve Matthews, and Matthew Boesler)

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