FED

more to bolster the economy. One possible move, he said, would be to provide more specific guidance about how long the Fed will keep short-term rates low. This guidance could help the economy by reducing the likelihood that investors will send borrowing costs higher before the Fed intends. The policymakers could, for example, announce at a future meeting that they will put off any rate hike until inflation returns to its 2 per cent target. Another option the Fed discussed, Powell said, is to peg more rates at nearly zero, such as those on two-year or threeyear Treasury notes, to underscore their determination to keep rates very low for that length of time. Australia’s central bank has adopted such a policy. But Powell said it is still an “open question” as to whether the Fed would take that approach. The chairman pushed back at a question about whether the economy could sink into something resembling the Great Depression of the 1930s. “I don’t think the Great Depression is a good example or a likely outcome or a model for what’s happening here,” he said. “First, the government response has been so fast and so forceful. The origin was quite different. This was an economy that was in a healthy place. The financial system this time was in very good shape, much better capitalised.” Over the past few weeks, the Fed’s actions are credited with having helped fuel an extraordinary rally in the stock market, which has nearly regained its pre-pandemic high after a dizzying plunge in March. By committing to buy corporate bonds, for example, the central bank has ensured that corporations can continue to borrow. Its initiatives also include a firstever programme through which the Fed is buying state and local government debt to support the municipal bond market. Many economists say those steps have prevented the downturn from worsening, by keeping credit flowing. This week, the National Bureau of Economic Research, the official arbiter of recessions, declared that the US economy entered a recession in February.