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The Fed’s $4 Trillion Lifeline Never Materialized. Here’s Why.

WASHINGTON — As companies furloughed millions of workers and stock prices plunged through late March, Treasury Secretary Steven Mnuchin offered a glimmer of hope: The government was about to step in with a $4 trillion bazooka.

The scope of that promise hinged on the Federal Reserve. The relief package winding through Congress at the time included a $454 billion pot of money earmarked for the Treasury to back Fed loan programs. Every one of those dollars could, in theory, be turned into as much as $10 in loans. Emergency powers would allow the central bank to create the money for lending; it just required that the Treasury insure against losses.

It was a shock-and-awe moment when lawmakers gave the package a thumbs up. Yet in the months since, the planned punch has not materialized.

The Treasury has allocated $195 billion to back Fed lending programs, less than half of the allotted sum. The programs supported by that insurance have made just $20 billion in loans, far less than the suggested trillions.

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The programs have partly fallen victim to their own success: Markets calmed as the Fed vowed to intervene, making the facilities less necessary as credit began to flow again. They have also been undercut by Mr. Mnuchin’s fear of taking credit losses, limiting the risk the government was willing to take and excluding some would-be borrowers. And they have been restrained by reticence at the central bank, which has extended its authorities into new markets, including some — like midsize business lending — that its powers are poorly designed to serve. The Fed has pushed the boundaries on its traditional role as a lender of last resort, but not far enough to hand out the sort of loans some in Congress had envisioned.

Lawmakers, President Trump and administration officials are now clamoring to repurpose the unused funds, an effort that has taken on more urgency as the economic recovery slows and the chances of another fiscal package remain unclear. The various programs are set to expire on Dec. 31 unless Mr. Mnuchin and Jerome H. Powell, the Fed chair, extend them.

Here’s how that $454 billion failed to turn into $4 trillion, and why the Fed and Treasury are under pressure to do more with the money.

The Fed can lend to private entities to keep markets functioning in times of stress, and in the early days of the crisis it rolled out a far-reaching set of programs meant to soothe panicked investors.

But the Fed’s vast power comes with strings attached. Treasury must approve of any lending programs it wants to set up. The programs must lend to solvent entities and be broad-based, rather than targeting one or two individual firms. If the borrowers are risky, the Fed requires insurance from either the private sector or the Treasury Department.

Early in the crisis, the Treasury used existing money to back market-focused stabilization programs. But that funding source was finite, and as Mr. Mnuchin negotiated with Congress, he pushed for money to back a broader spate of Fed lending efforts.

The central bank itself made a major announcement on March 23, as the package was being negotiated. It said it was making plans to funnel money into a wide array of desperate hands, not just into Wall Street’s plumbing. Officials would set up an effort to lend to small and medium-size businesses, the Fed said, and another that would keep corporate bonds flowing. It would go on to expand that program to include some recently downgraded bonds, so-called fallen angels, and to add a bond-buying program for state and local governments.

Congress allocated $454 billion in support of the programs as part of the economic relief package signed into law on March 27. When the Congressional Budget Office estimated the budget effects of that funding, it did not count the cost toward the federal deficit, since borrowers would repay on the Fed’s loans, and fees and earnings should offset losses.

Mr. Mnuchin and congressional leaders did not settle on that sum for a very precise economic reason, a senior Treasury official said, but they knew conditions were bad and wanted to go big.

Overdoing it would cost nothing, and the size of the pot allowed Mr. Mnuchin to say that the partners could pump “up to $4 trillion” into the economy.

It was like nuclear deterrence for financial markets: Promise that the government had enough liquidity-blasting superpower to conquer any threat, and people would stop running for safer places to put their money. Crisis averted, there would be no need to actually use the ammunition.

Still, the huge dollar figure stoked hopes among lawmakers and would-be loan recipients — ones that have been disappointed.

Key markets began to mend themselves as soon as the Fed promised to step in as a backstop. Companies and local governments have been able to raise funds by selling debt to private investors at low rates.

Corporate bond issuance had ground to a standstill before the Fed stepped in, but companies have raised $1.5 trillion since it did, Daleep Singh, an official at the New York Fed, said on Tuesday. That is double the pace last year. The companies raising money are major employers and producers, and if they lacked access to credit it would spell trouble for the economy.

While self-induced obsolescence partly explains why the programs have not been used, it’s not the whole story. The Main Street program, the one meant to make loans to midsize businesses, is expected to see muted use even if conditions deteriorate again. In the program that buys state and local debt, rates are high and payback periods are shorter than many had hoped.

Continued lobbying suggests that if the programs were shaped differently, more companies and governments might use them.

The relatively conservative design owes to risk aversion on Mr. Mnuchin’s part: He was initially hesitant to take any losses and has remained cautious. They also trace to the Fed’s identity as a lender of last resort.

Walter Bagehot, a 19th-century British journalist who wrote the closest thing the Fed has to a Bible, said central banks should lend freely at a penalty rate and against good collateral during times of crisis.

In short: Step in when you must, but don’t replace the private sector or gamble on lost causes.

That dictum is baked into the Fed’s legal authority. The law that allows it to make emergency loans instructs officials to ensure that borrowers are “unable to secure adequate credit accommodations from other banking institutions.” The Fed specified in its own regulation that loan facilities should charge more than the market does in normal conditions — it wants to be a last-ditch option, not one borrowers would tap first.

The Fed has stretched its “last resort” boundaries. The Main Street program works through banks to make loans, so it is more of a credit-providing partnership than a pure market backstop, for instance.

Yet Bagehot’s dictum still informs the Fed’s efforts, which is especially easy to see in the municipal program. State finance groups and some politicians have been pushing the central bank to offer better conditions than are available in the market — which now has very low rates — to help governments borrow money for next to nothing in times of need.

The Fed and Treasury have resisted, arguing that the program has achieved its goal by helping the market to work.

Congress is not uniformly on board with wanting a more aggressive Fed that might become a first option for credit. Senator Patrick J. Toomey of Pennsylvania, a Republican on the committee that oversees the central bank, has repeatedly underlined that the Fed is a backstop.

And replacing private creditors during times of crisis would put central bankers — who are neither elected nor especially accountable — in the position of picking economic winners and losers, a role that worries the Fed.

Such choices are inherently political and polarizing. Already, many of the same people who criticize stringency in the state and local programs regularly argue that the programs intended to help companies should have come with more strings attached.

And it could become a slippery slope. If the Fed shoulders more responsibility for saving private and smaller public entities, Congress might punt problems toward the central bank before solving them democratically down the road.

“It’s opening Pandora’s box,” said David Beckworth, a senior research fellow at the Mercatus Center at George Mason University.

Being too careful could also carry an economic risk if it meant that the Fed failed to provide help where needed. The midsize business segment, which employs millions of people, has had few pandemic relief options. Struggling states and cities are also huge employers.

Yet those entities may be past the point of needing debt — all the Fed can offer — and require grants instead. And it is worth noting that just because the Fed and Treasury are not rewriting their programs to support broader use now does not mean the Fed would stand back if conditions were to worsen.

If that happens, “it’s going to stop pointing to the fact that it has a fire hose,” said Peter Conti-Brown, a Fed historian at the University of Pennsylvania. “It’s going to take it out and turn it on.”

Alan Rappeport contributed reporting.

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The Fed Enabled a Record Expansion. Trump Is Taking Credit.

WASHINGTON — President Trump is using the prepandemic economy to make a case for his re-election, highlighting time and again that unemployment rates fell to record low levels for Black and Hispanic workers in 2019, and that wages were climbing steadily under his watch.

He is also seeking to convince voters that he is rapidly returning America to that prosperous place following waves of pandemic-wrought job loss — fostering what he labeled a “Super V” rebound on Sunday — and that Joseph R. Biden Jr. would “destroy” the economy if he wins in November.

But Mr. Trump’s story line about his economic track record, particularly what he showcased during his Republican National Convention speech last month, leaves out a crucial detail. Lucky timing and a patient Federal Reserve was pivotal in driving the strong labor market of the late 2010s, economists said. The Trump administration’s tax cuts and higher government spending temporarily nudged the economy, but the trade wars cooled it off, so the administration’s track record was mixed.

That complicated reality is unlikely to stop Mr. Trump from laying claim to the successes of the 2018 and 2019 job market. But voters who want to understand what drove such strong hiring and growth might be better off looking at the actions of the Fed and its chair, Jerome H. Powell, whom Mr. Trump nominated in late 2017 and then spent more than a year attacking on Twitter and in speeches.

By retaining his predecessor’s patient approach to rate increases — and then stopping them altogether as inflation, which the central bank tries to keep under control, hovered at low levels — Mr. Powell’s Fed helped to keep the longest economic expansion in United States history chugging along. The stretch of unbroken growth pushed unemployment to its lowest level in 50 years, prompting companies to cast a wider net for employees, pulling long-sidelined workers back into jobs.

“Both monetary and fiscal policy were stimulative, and it did lead to a strong labor market,” said Stephanie Aaronson, a former Fed researcher who is now at the Brookings Institution. Very low inflation “has given policymakers the latitude to try new things.”

That matters as more than a talking point: It could fundamentally shape the post-pandemic economy. The Fed has signaled that it intends to leave rates low to push unemployment down again, which could help return the labor market to strong levels. But the challenges posed by business closures and job reshuffling mean that elected officials, who have taxing and spending powers that the Fed lacks, may prove crucial to the speed and scope of the rebound.

“The single most important thing we can do here is to support a strong labor market,” Mr. Powell said in late August remarks. “That is more of an all-governmental society project,” and “to wait to the eighth and ninth year of the cycle to get those results — we can do better than that with other policies.”

To be sure, it is easy to overstate how strong conditions were before the pandemic struck.

About 83 percent of adults in their prime working years were in the labor force at the start of 2020, which was a marked improvement but still down from an 84.6 percent high in the late 1990s. Inequality prevailed. Wage growth had picked up from the expansion’s early years, but it remained shy of historical records.

But there is no doubt that the prepandemic job market was robust. Unemployment had declined to 3.5 percent, its lowest level in half a century. Prime-age workers who had dropped out of the labor market were surprising economists by applying for jobs. Unemployment for Black and Hispanic workers hit record lows, and pay was picking up for those who earned the least.

Now, the pandemic recession has thrown millions out of work, hitting disadvantaged groups especially hard. Black unemployment stood at 13 percent in August, for instance, compared to 7.3 percent for white workers.

Credit…Stefani Reynolds for The New York Times

Mr. Trump is already taking a victory lap as the job market begins to heal, calling the rebound “the fastest labor market recovery from an economic crisis in history” during a Sunday news conference. But about half of the people who have lost jobs since February remain unemployed. Economists have warned that the return to full strength could become a grinding process, and Mr. Powell has said that some workers may struggle to return to jobs.

Understanding the policy mix that helped make the labor market so strong in 2019 will be critical to putting the United States back on track for another robust period of growth.

Some of the policies pushed through by Mr. Trump and lawmakers did help to bolster economic growth, which can drive hiring, economists said. The government was spending more freely, and the administration’s signature tax cuts, passed in late 2017, seem to have delivered a fleeting jolt to the economy.

Economists at the University of Pennsylvania’s Penn Wharton Budget Model say that the Tax Cuts and Jobs Act helped growth to jump to about 3 percent for 2018, but the effect faded as growth returned to 2.2 percent in 2019.

“We don’t project any material impact on growth from T.C.J.A. in 2019 or going forward,” said Alexander Arnon, a senior analyst at the Penn Wharton Budget Model, a research center that analyzes and predicts the effects of tax and other policy changes on the federal budget.

Data make it clear that the administration’s policies were not the whole story.

A chart of employment gains over the expansion show that they continued with remarkable consistency, month over month and year after year, starting from around 2010. The jobless rate slowly and steadily dropped. And people gradually trickled back from the labor market’s sidelines.

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Much of the improvement seems to have been driven by a long, steady economic expansion, creating a self-sustaining cycle in which workers got hired, spent more and fueled demand that created more jobs.

Fed policy helped to enable the progress. Starting under Mr. Powell’s predecessor Janet L. Yellen, the central bank chose to lift interest rates at a historically slow pace, treading carefully to avoid crashing the expansion while also trying to avoid runaway inflation.

Mr. Powell, who assumed the Fed chair in February 2018, raised rates four times during his first year — still a much slower pace than in prior business cycles — before pausing in early 2019 as markets gyrated. Under his watch, the central bank allowed the unemployment rate to fall to recent lows without trying to offset that change, and even lowered interest rates in the second half of 2019 to help sustain the expansion amid Mr. Trump’s trade war, which included steep tariffs on Chinese goods.

Mr. Trump himself was publicly pushing for rate cuts, viewing that as a way to make the economy take off like a “rocket.” He regularly criticized Mr. Powell for the 2018 rate increases and then the slow pace of 2019 rate cuts. The president implied that Mr. Powell was an “enemy” and called the Fed chair and his colleagues “boneheads” for not pursuing easier monetary policy sooner.

But the Fed sets rates independently of the White House and consistently ignored his advice. When it did move, it neither did so at the speed the president sought, nor by using the emergency monetary tools that he wanted.

The good news for the post-crisis recovery and rebound is that the Fed is likely to again let unemployment fall sharply.

In an update to its long-run framework in late August, the Fed officially signaled that it will no longer raise interest rates because of a low unemployment rate alone, effectively codifying the practice adopted last year.

The bad news is that the central bank is low on ammunition to prod the economy. It was able to cut interest rates by only 1.5 percentage points when the pandemic started, compared to cuts that totaled about 5 percent during the prior two recessions. Relying too much on low rates could make for another very gradual recovery — one like the last long expansion, which took nearly a decade to really pull workers in from the sidelines.

“We really need it to be broader than just the Fed,” Mr. Powell said of post-pandemic labor market policies, speaking at the Kansas City Fed’s conference in late August.

Mr. Trump and his allies are correct in arguing that leadership from the White House could matter enormously. Government taxing and spending will be paramount to the strength of the coming business cycle.

“President Trump and a President Biden would pursue different fiscal policy paths,” said Michael Strain, who studies economic policy at the American Enterprise Institute. “There might also be differences in how they pursue the public health situation.”

Most economists argue that more government spending will be important to keeping America on a path toward full recovery. There is less agreement over shutdown versus reopening: Some stress the primacy of controlling the virus, while others argue that the costs to business and jobs are too steep.

“There are a lot of unknowns,” Mr. Strain said.

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Fed Chair Sets Stage for Longer Periods of Lower Rates

Jerome H. Powell, the chair of the Federal Reserve, announced a major shift in how the central bank guides the economy, signaling it will no longer raise interest rates to keep the unemployment rate from falling too far and that it will allow inflation to run slightly higher in good times.

In emphasizing the importance of a strong labor market and aiming for moderately faster price gains, Mr. Powell and his colleagues laid the groundwork for years of low interest rates. That could translate into long periods of cheap mortgages and business loans that foster strong demand and solid job markets.

The Fed chief announced the change at the Kansas City Fed’s annual policy symposium, which is being held via webcast instead of in Jackson Hole, Wyo., where it has taken place since 1982. Mr. Powell used the widely visible forum to explain the results of the central bank’s first-ever review of its monetary policy strategy, which it has been working on for the past year and a half. In conjunction with his remarks, the Fed released an outline of its long-run policy strategy.

“Our revised statement emphasizes that maximum employment is a broad-based and inclusive goal,” Mr. Powell said in the remarks. “This change reflects our appreciation for the benefits of a strong labor market, particularly for many in low- and moderate-income communities.”

Mr. Powell’s speech could help define his tenure as chair, which began in early 2018 in the midst of the longest economic expansion on record and has run straight into the sharpest downturn since the Great Depression. The central bank is simultaneously facing a major short-run challenge — the coronavirus pandemic has shuttered businesses and cost millions of jobs — and daunting longer-run shifts in the United States and global economy. Interest rates and inflation have slipped lower across advanced economies, leaving policymakers with less room to reduce borrowing costs to coax growth following downturns.

Mr. Powell’s announcement codifies a critical shift in how the central bank tries to achieve its twin goals of maximum employment and stable inflation — one that could inform how the Fed sets monetary policy in the wake of the pandemic-induced recession.

The Fed had raised rates as joblessness fell to avoid economic overheating that might end in breakaway inflation. It took such an approach from 2015 to 2018, raising rates a total of 9 times as the jobless rate slipped steadily lower, trying to guard against price increases before they materialized. But higher inflation never showed up, and critics have asked whether the Fed slowed the economy without reason.

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The Fed’s updated framework recognizes that too low inflation is now the problem, rather than too high.

[Read more about how the Fed’s view on inflation has been shifting.]

Its revised statement says that its policies will be informed by “shortfalls” of employment from its maximum level, rather than by “deviations” — suggesting that the central bank is no longer planning to raise rates to cool off the labor market simply because unemployment has dipped to low levels.

“This change may appear subtle, but it reflects our view that a robust job market can be sustained without causing an outbreak of inflation,” Mr. Powell said.

The central bank is also formally shifting its inflation approach, aiming to average 2 percent inflation over time, rather than as an absolute goal. In doing so, the Fed is trying to convince the public and investors that it will allow prices to rise a little bit faster. If public inflation expectations slip, it can lock in slow price gains. Those feed directly into the level of interest rates, and leave the central bank with even less room to cut them during times of crisis.

“If inflation expectations fall below our 2 percent objective, interest rates would decline in tandem,” Mr. Powell said. “In turn, we would have less scope to cut interest rates to boost employment during an economic downturn.”

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Higher inflation may seem like an odd goal to anyone who buys milk or pays rent, but excessively weak price gains can actually have damaging effects on the economy. A circle of stagnation in which lower prices leave less room to cut rates has played out in countries including Japan.

“We are certainly mindful that higher prices for essential items, such as food, gasoline, and shelter, add to the burdens faced by many families, especially those struggling with lost jobs and incomes,” Mr. Powell said. “However, inflation that is persistently too low can pose serious risks to the economy.”

In a question-and-answer session after speech, Mr. Powell said the Fed was “talking about inflation moving moderately.”

If the Fed can achieve slightly higher price gains, it will translate into more room for future rate cuts — and buying that extra headroom is a crucial goal in 2020. Long-running economic changes, such as an aging population with different saving habits and weaker productivity gains, have weighed on the interest rate setting that neither stokes nor slows the economy. That has left the central bank with less recession-fighting wiggle room.

Still, Mr. Powell pointed out that it he and his colleagues “are not tying ourselves to a particular mathematical formula that defines the average.”

Some economists questioned whether the Fed will actually manage to achieve its higher inflation goal.

“The Fed is announcing this policy framework in part to push up inflation expectations,” said Seth Carpenter, a former Fed research official now at UBS. “In practice, however, getting above 2 percent is a long way off.”

Many of the changes the Fed announced Thursday formalize an approach it has edged toward over the past decade. The Fed was patient in beginning lifting interest rates following the recession from 2007 to 2009, even as unemployment fell.

When it did start to raise borrowing costs in late 2015, under Janet L. Yellen, it did so slowly. Even those gradual moves have seemed like they may have been overkill in hindsight. Price gains hovered below the Fed’s 2 percent target even as pre-pandemic unemployment held near a half-century low.

Under Mr. Powell’s leadership, the Fed has increasingly emphasized the benefits of that strong labor market, which pulled long-sidelined workers into jobs and helped to foster strong wage growth for those who earn the least. The update bookends that evolution toward greater patience and more tolerance — or even encouragement — of historically- low unemployment.

The long-run document promises that the central bank will continue to hold reviews, roughly every five years, and will continue to consult the public as it has done over the past year through its “Fed Listens” events. That could help it to deal with the challenges of very low interest rates as the economy moves forward, and it will keep the public in the loop about how the Fed is approaching its targets.

“Public faith in large institutions around the world is under pressure,” Mr. Powell said in a question-and-answer session following his speech. “Institutions like the Fed have to aggressively seek transparency and accountability to preserve our democratic legitimacy.”

The Fed also explicitly noted in its statement that financial stability ranks among its key goals. In recent decades, expansions have ended when asset price bubbles — like the mid-2000s housing boom — got out of control, rather than at the hands of too-high inflation.

“Sustainably achieving maximum employment and price stability depends on a stable financial system,” the Fed said in its statement. “Therefore, the committee’s policy decisions reflect its longer-run goals, its medium-term outlook, and its assessments of the balance of risks, including risks to the financial system that could impede the attainment of the committee’s goals.”

Mr. Powell’s remarks, and the central bank’s shift, are set against an unhappy backdrop.

Fed officials have taken action to support the economy as the pandemic-induced downturn drags on — cutting interest rates to zero, buying government-backed bonds in vast sums, and rolling out emergency lending programs. Still, more than one million people filed initial state jobless claims last week, data released Thursday morning showed.

The Fed has repeatedly emphasized that a strong job market and economy is an imperative goal, but that Congress will need to help achieve it.

“It is hard to overstate the benefits of sustaining a strong labor market, a key national goal that will require a range of policies in addition to supportive monetary policy,” Mr. Powell said.

He added that there was a strong economy under the surface of the ongoing weakness.

“We will get through this period, maybe with some starts and stops,” he said. Still, “we’re looking at a long tail” as people who work in industries heavily impacted, like travel and service, struggle to find new work in a process that could take years.

“We need to support them,” Mr. Powell said.

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The Fed’s Evolution Is Coming to a Computer Screen Near You

WASHINGTON — For more than a year, the Federal Reserve has wrestled with how to achieve its twin goals — maximum employment and stable inflation — in an era of tepid price increases and very low interest rates.

While not a major kitchen table topic, the Fed’s approach to monetary policy affects every household in America. When it lifts or lowers interest rates to slow or speed growth, it changes the cost of mortgages and car loans. Because its policies help to determine economic strength, they inform how many jobs are available and how long expansions last.

On Thursday, Chair Jerome H. Powell will have a chance to update America on the central bank’s soon-to-conclude framework review, in which it has revisited its policy tools for good and bad times, in a speech at the Kansas City Fed’s annual conference. The storied gathering of elite economists has been held behind closed doors in Jackson Hole, Wyo., since 1982. Because of the coronavirus pandemic, the event will be held remotely and streamed on the Kansas City Fed’s YouTube page this year, allowing the public to tune in for the first time ever.

Mr. Powell, who is scheduled to speak at 9:10 a.m., is expected to summarize what the Fed has discovered as it has spent 21 months discussing its future policy approach. He may stop short of offering up the full set of final results — the central bank has hinted that will happen when it updates its long-run policy statement, an outline of overarching principles that officials usually release in January but which many economists expect them to revamp at their Sept. 15-16 meeting.

Fed watchers expect the central bank to shift from targeting 2 percent inflation exactly to a more flexible approach, such as aiming for 2 percent on average over time. The exact details remain unclear, but the adjustment could lay the groundwork for long periods of near-zero interest rates and very low unemployment.

Officials have promised the coming tweaks will be more “evolution” than “revolution.” Yet they will represent the culmination of not just the review, but also a yearslong process in which economists have been forced to fundamentally rethink the relationship between unemployment and prices, and the role of central bankers in a modern economy that has undergone tectonic shifts as the population has aged and productivity growth has slowed.

“What we’ve seen over the past six to seven years is a gradual shift which, cumulatively, is powerful,” Stephanie Aaronson, a former Fed research official now at the Brookings Institution. Whatever adjustment is adopted “has to be seen in the context of all of the changes since the Great Recession.”

For decades, economists believed that as unemployment fell, worker scarcity would force employers to raise wages in order to hire. Businesses would raise prices to cover those labor costs, and inflation would result.

The Fed saw its role as choking off that upward price spiral before it got going. Because rate changes take time to work, that meant lifting the federal funds rate well before inflation actually materialized, in a bid to cool off demand and slow the economy.

But real life diverged sharply from the textbook scenario. Since the 2008 financial crisis, inflation has remained stubbornly below the Fed’s 2 percent target — a goal it is sees as just enough to grease the wheels of the economy without causing harmful side effects.

People once criticized Janet L. Yellen, a former Fed chair, and her colleagues for waiting so long to raise interest rates after the 2007 to 2009 recession, warning that they were setting the stage for runaway prices. Now, critics more often say that the Fed’s first post-recession rate increase — in December 2015 — came too early.

Lackluster inflation is not the only problem confronting the Fed. Interest rates have been falling across advanced economies, seemingly driven by gradual economic shifts such as population aging and weaker productivity growth. That leaves central banks with less room to bolster economic growth when times are tough by making money cheaper.

Because policy interest rates include inflation, weak price gains only serve to worsen the dilemma. Inadequate room to lower rates also leads to tepid recoveries and longer periods of slow inflation, feeding an unhappy cycle of stagnation.

Credit…Andrew Harnik/Associated Press

In light of the changes, the Fed has become more patient when it sets policy in recent years, allowing unemployment to drift lower in hopes of coaxing inflation higher.

By formally updating its framework, the Fed is trying to avoid a fate similar to the one that has befallen Japan. There, both interest rates and inflation trended downward for years, and the central bank has been forced to go to extreme lengths to try to stimulate the economy. Despite innovative and experimental policies — stock buying and negative interest rates among them — price increases have remained weak, trapped by public expectations. Europe is battling a similar phenomenon.

In part because the public’s understanding of future inflation seems to drive real-world economic results, the Fed is intent on clearly communicating what it is doing, and why. Officials have also increasingly taken the view that the Fed should try to be accountable to the people it serves.

The Fed went to great lengths to get the broader public involved in the policy overhaul, holding “Fed Listens” community events around the country alongside more typical academic conferences. On Thursday, Mr. Powell’s speech will be simultaneously available to academics and government officials — the usual Jackson Hole conference invitees — and armchair enthusiasts who have been following along from home.

While the Jackson Hole conference’s new democratization is driven by necessity, it is a fitting early conclusion for a review that focused on openness.

Wall Street analysts expect officials to set out a more concrete plan for the near future of interest rates once they have made the formal tweaks to their long-run statement. Fed officials signaled in their July meeting minutes that the updated document “would be very helpful in providing an overarching framework that would help guide the committee’s future policy actions and communications.”

To some degree, the anticipated adjustments will just commit to what is already happening in practice. Fed officials have given no indication that they are eager to raise rates, now at nearly zero, even if unemployment should fall quickly. Mr. Powell said at his late-July news conference that the framework changes “are really codifying the way we’re already acting with our policies.”

Still, “it’s a big change for them to codify and formalize it,” said Julia Coronado, founder of MacroPolicy Perspectives and a former Fed economist, in part because it means that Federal Open Market Committee, which sets interest rates, will now be tied into the approach. “It commits future committees.”

But it is unclear whether the adjustments Mr. Powell and his colleagues make will be enough to deal with the changes that have quietly transformed the modern economy.

The theoretical interest rate that would neither speed up nor slow down growth has dropped by more than 2 percent since the early 2000s, based on one popular model. Wringing out a few extra fractions of a percent by pumping up inflation will not fully restore that decline. And when it comes to crisis tools, longer-term interest rates have also dropped, rendering large-scale bond-buying programs meant to push them down less powerful.

“It’s not going to be enough,” Ms. Coronado said. After this crisis is over, she said, Congress should look at what tools the Fed has at its disposal to counter future crises. “We should be thinking big, and structurally.”

For now, Fed officials have turned to talking about government taxing and spending policy — the other lever that can stoke the economy, but one that is out of their hands. Central bankers have made clear that they believe Congress should pass another pandemic response package.

“The bottom line is that monetary policy is approaching its limits,” Paul Ashworth at Capital Economics wrote in an Aug. 25 note. “While Fed officials would never admit that publicly, that explains why they have become so outspoken in encouraging Congress to put more fiscal stimulus in place.”

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The National Debt is Surging

Economists and deficit hawks have warned for decades that the United States was borrowing too much money. The federal debt was ballooning so fast, they said, that economic ruin was inevitable: Interest rates would skyrocket, taxes would rise and inflation would probably run wild.

The death spiral could be triggered once the debt surpassed the size of the U.S. economy — a turning point that was probably still years in the future.

It actually happened much sooner: sometime before the end of June.

The coronavirus pandemic, and the economic collapse that followed, unleashed a historic run of government borrowing: trillions of dollars for stimulus payments, unemployment insurance expansions, and loans to prop up small businesses and to keep big companies afloat.

But the economy hasn’t drowned in the flood of red ink — and there’s a growing sense that the country could take on even more without any serious consequences.

“At this stage, I think, nobody is very worried about debt,” said Olivier Blanchard, a senior fellow at the Peterson Institute for International Economics and a former chief economist for the International Monetary Fund. “It’s clear that we can probably go where we are going, which is debt ratios above 100 percent in many countries. And that’s not the end of the world.”

That nonchalant attitude toward what were once thought to be major breaking points reflects an evolution in the way investors, economists and central bankers think about government debt.

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As levels of debt among rich nations like the United States and Japan have climbed relentlessly in recent decades, the cost of carrying that debt — reflected in interest rates — has tumbled, leaving little indication that markets were losing confidence in the willingness and ability of these countries to carry their financial burdens.

And since the 2008 financial crisis, traditional thinking about borrowing by governments — at least those that control their own currencies — has further weakened, as central banks in major developed markets became enormous buyers in government bond markets.

Critics repeatedly said this circular form of fiscal finance — in which one arm of the government, the central bank, basically creates the money needed to fund the arm of government that taxes and spends — would inevitably lead to a spiral of inflation, a spike in interest rates or a loss of confidence in the currencies. It didn’t.

“This is a 40-year pattern,” said Stephanie Kelton, a professor of economics and public policy at Stony Brook University and a proponent of what’s often called Modern Monetary Theory. That view holds that countries that control their own currencies have far more leeway to run large deficits than traditionally thought. “The whole premise that deficits drive up interest rates, it’s just wrong,” she said.

At the end of last year, the United States was about $17 trillion in debt — roughly 80 percent of the gross domestic product. In January, government analysts predicted that debt would approach 100 percent of the G.D.P. around 2030. But by the end of June, the debt stood at $20.53 trillion, or roughly 106 percent of G.D.P., which shrank amid widespread stay-at-home orders. (These numbers don’t count trillions more the government owes itself in bonds held by the Social Security and Medicare trust funds.)

That more than 25 percentage-point surge would represent the largest annual leap in American indebtedness since Alexander Hamilton founded the nation’s credit in the 1790s, outpacing even the debt growth at the peak of World War II, according to data from the Congressional Budget Office.

And it’s not over yet. The Treasury is expected to borrow over $1 trillion more through the end of the year — and that’s without counting another stimulus package. Republicans in Congress have pushed for a $1 trillion package, while Democrats have already passed their own plan with a price tag of more than $3 trillion.

“What’s very clear is that the U.S. economy has some room,” said Rick Rieder, global chief investment officer of fixed income at BlackRock, which manages over $7 trillion in investments for clients, including more than $2 trillion in bonds. “I would argue that we still have room now for another fiscal package.”

Talks on such a package are currently stalled, with the surging levels of debt often cited by Republicans lawmakers as a reason to oppose further fiscal action. But even the current situation would have been unthinkable not long ago.

Economists have long told a story in which debt levels this large inevitably ignited an economic doom loop. Towering levels of debt would freak out Treasury bond investors, who would demand higher interest rates to hand their cash to such a heavily indebted borrower. With its debt payments more expensive, the government would have to borrow even more to stay current on its obligations.

Neither tax increases nor spending cuts would be attractive, because both could slow the economy — and any slowdown would hurt tax revenues, meaning the government would have to keep borrowing more. These scenarios frequently included dire predictions of soaring interest rates for business and consumer borrowing and crushing inflation as the government printed more and more money to pay what it owed.

But instead of panicking, the financial markets are viewing this seemingly bottomless need for borrowing benignly. The interest rate on the 10-year Treasury note — also known as its yield — is roughly 0.7 percent, far below where it was a little over a year ago, when it was about 2 percent.

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Expectations for economic growth and inflation are the crucial drivers of interest rates, and such low rates very likely mean investors expect a long period of piddling growth. But they also signal that investors see almost no chance that the United States, which has one of the best track records of any borrower on earth, will stiff them by defaulting.

One big reason: As during World War II, much of the money the government has borrowed is coming from an arm of the government itself, the Federal Reserve. The central bank has increased its holdings of Treasury securities by more than $1.8 trillion since March, effectively creating all the new money it needed to buy them. For many years, such arrangements were viewed as something that was done in wobbly emerging market economies.

But since the financial crisis of 2008 and the deep recession that followed, central banks in the richest nations in the world — the Fed, as well as the Bank of Japan, the Bank of England and the European Central Bank — have printed large amounts of money to buy government bonds and spur economic growth by lowering long-term interest rates.

The bond-buying programs in the United States were some of the world’s most aggressive. Critics said they would lead to disaster, with the increase in dollars setting off a surge of inflation similar to the one that dogged the economy in the 1970s. But inflation has stayed low, consistently coming in below the 2 percent target set by the Federal Reserve.

That’s not to say conditions will stay that way. Earlier this month, the price of gold, typically bought by investors as a hedge against inflation, rose above $2,000 an ounce — a record — suggesting that some could be buying a bit of insurance against a sharp rise in the future.

There’s a debate about whether a large amount of government debt hamstrings economic growth over the long term. Some influential studies have shown that high levels of debt — in particular debt-to-G.D.P. ratios approaching 100 percent — are associated with lower levels of economic growth. But other researchers have found that the relationship isn’t causal: Slowing economic growth might lead to higher levels of debt, rather than vice versa.

Others have found that they don’t see much of a relationship between high levels of debt and slow economic growth for rich developed countries. But they do see such a relationship for poorer developing economies, which are much more reliant on foreign investors, who could be spooked by rising levels of debt. Such situations have repeatedly played out in emerging markets over the years.

Even so, the experience over the last decade has drastically shifted the way economists and investors think about how the United States funds itself.

“Fiscal constraints aren’t nearly what economists thought they were,” said Daniel Ivascyn, chief investment officer for PIMCO, which manages nearly $2 trillion in assets, mostly in bonds. “When you have a central bank essentially funding these deficits, you can take debt levels to higher debt levels than people envisioned.”

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How Pimco’s Cayman-Based Hedge Fund Can Profit From the Fed’s Rescue

WASHINGTON — Pacific Investment Management Company runs a hedge fund registered in the Cayman Islands, a common structure for avoiding certain U.S. taxes. But when a profit opportunity arose from the ashes of America’s coronavirus crisis, that international location did not stop it from seizing the moment.

The Federal Reserve opened a highly anticipated emergency lending program in June, a revamped version of one that handed sophisticated investors double-digit returns during the 2008 financial crisis. The 2020 version is backed by congressional funding, and the rules stipulate that only American companies can participate as borrowers. For Pimco’s offshore fund, there was an easy way to still benefit.

The offshore fund is invested in an entity registered in Delaware and tied to the larger firm, which is based in Newport Beach, Calif. That entity, which investment managers can use to make transactions, also has backing from the U.S.-based versions of the Pimco hedge fund. It turned around and borrowed $13.1 million from the Fed program by pledging a bundle of debt as collateral. Investors in the Pimco hedge fund ultimately stand to profit from the transaction.

The Pimco example is not unique — other foreign investors have put money into U.S.-based funds that are tapping the Fed program. That they found a way to participate in a program restricted to American borrowers highlights that financial firms are looking to make money from the Fed’s market rescue programs, even if doing so means maneuvering around congressional limitations on eligibility.

The Fed’s program is intended to keep credit flowing through the economy, but its design has provided an opportunity for global financial players to profit from an initiative backed by taxpayer funding. That side effect could draw further scrutiny to the Fed’s rescue efforts, which are already prompting questions from lawmakers about who benefits, and on what terms.

The lending programs “drag the Fed into political crossfire,” said Mark Spindel, chief investment officer at Potomac River Capital and an author of a book on the politics of the Fed. “The Fed is seen as the honest broker in town — but just because you’re the honest broker today, doesn’t mean you’re not going to face questions down the road.”

The goal of the Fed program in question, known as the Term Asset-Backed Securities Loan Facility or TALF, is to bolster a critical corner of U.S. debt markets, one where loans are bundled and sold off to investors who are willing to take on risk in exchange for interest payments. That helps to keep the market for commercial mortgages functioning, and allows student loans and credit card debt to continue flowing to end-users.

The program was not created to make money for investment vehicles or the investors they represent. But because of the way TALF works, financial firms like Pimco’s hedge fund can make a profit from it.

It operates by encouraging investors to buy securities built on bundles of consumer and business debt — called asset-backed securities — and offering them as collateral for a cheap loan from the Fed. Firms can borrow directly from TALF, or like Pimco’s fund did, they can set up an investment vehicle to do the same thing.

Credit…Mike Blake/Reuters

A hedge fund like Pimco’s can put money into a U.S.-based vehicle, which then buys asset-backed securities using some combination of cash and short-term loans. The investment vehicle takes the securities to the Fed and gets a TALF loan.

Those TALF funds can be used to pay back whatever the investment vehicle borrowed to buy the asset-backed securities, so that its holdings are funded mostly by the cheap Fed loan, and a sliver of its own money (what is known as a “haircut” in financial parlance). It essentially earns the difference between what it makes in interest from the securities and what it is paying on the Fed loan.

Because investors have just a small amount of money at stake, returns on each invested dollar can be quite high. Investors said they anticipated high single-digit returns in 2020, far lower than the double-digit returns in 2008 but still generous.

The Fed has so far released detailed data only on TALF’s first round of loans, though the program has since finalized another, larger round. In all, it had made $937 million in loans as of last week, mostly against commercial mortgage and small business loan-backed securities. A third round closes on Thursday, and the Fed will most likely release additional data in mid-August.

Pimco’s Cayman Islands-based fund, which has borrowed via a U.S.-based entity called TOCU IX, is one of several foreign investors using an American investment vehicle to gain access to TALF. The pension plan of the Oxford University Press Group will tap the program through a fund set up by the New York-based investment manager MacKay Shields. A Singapore-based fund is a material investor in an offering by the giant financial firm BlackRock, according to the Fed’s first round of detailed disclosures.

The fact that some investors based overseas can make money from TALF does not break Congress’s rules, but it may fall shy of what some lawmakers intended. They specified that loans, advances and asset purchases made under the Fed’s programs should be restricted to “businesses that are created or organized in the United States or under the laws of the United States.” But they said nothing about who could ultimately benefit.

“There are going to be people who focus on this like a laser,” Peter Conti-Brown, a Fed historian at the University of Pennsylvania’s Wharton School, said of the fact that foreign investors in some cases benefit from Fed programs. But the reality, he pointed out, is that financial markets are global.

“Others are going to say that there’s no way to provide liquidity without benefiting international counterparties.”

And while Pimco’s fund and other foreign investors may profit by participating in the program, their investment is also helping to keep more money flowing into the Fed’s program, smoothing over U.S. securitization markets.

That reality has presented a challenge for the Fed, which has had to walk a fine line between creating emergency programs that are effective while also making them politically palatable. Lawmakers want the Fed to help the economy, but have also warned the central bank against allowing companies to take advantage of taxpayer-backed funding.

When Republicans and Democrats were hammering out the details of their coronavirus rescue package in March, congressional leaders agreed to give the Treasury Department $454 billion to back up Fed emergency programs.

The Fed requires a Treasury backstop for many of those efforts, to insure against losses in case borrowers default. But because the Fed did not expect to lose every dollar it lent out, it could use the $454 billion to field a huge rescue: potentially more than $4 trillion in loans to businesses, states and cities.

The ability to supersize the coronavirus response package was an attractive proposition. But many lawmakers in both parties were wary about handing the Fed and the Treasury so much money. Many remembered the 2008 bank bailouts and the bad taste they had left behind. They did not want a repeat.


Credit…Anna Moneymaker for The New York Times

So Steven Mnuchin, the Treasury secretary, and key lawmakers agreed to terms that attached strings to the funding. Companies borrowing direct loans might be asked to try to maintain their payroll. Those who borrowed directly would also be banned from making dividend payments, and executives would face compensation limits. Only U.S. companies could borrow.

Those requirements are generally guidelines rather than binding rules, given the way the programs work. The Fed has found itself being hammered on both sides — some lawmakers have questioned whether the central bank is precluding companies from using its programs by being too strict, while others have warned it against letting big corporations and Wall Street firms benefit.

Foreign investor participation in the TALF program could raise similar questions from lawmakers and the oversight groups set up to police where the funds are going. Mr. Conti-Brown and others say that while Congress gave the Fed the room to make design choices, that will not insulate the central bank from critique.

The fact that the Fed has discretion “is a byproduct of political compromise,” Mr. Conti-Brown said. But “the Fed is always open to criticism down the road.”

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Federal Reserve Leaves Rates Near Zero as Economic Recovery Sputters

WASHINGTON — The Federal Reserve left interest rates near zero on Wednesday and Jerome H. Powell, the Fed chair, predicted a long road ahead as a recent spike in virus cases saps momentum from the nascent economic recovery.

“The path forward for the economy is extraordinarily uncertain and will depend in large part on our success in keeping the virus in check,” Mr. Powell said at a news conference following the Fed’s two-day meeting, noting that infections have surged since late June and the “pace of recovery looks like it has slowed.”

Mr. Powell said policymakers needed more data before drawing firm conclusions about the scope of the pullback, but he noted that debit and credit card spending were slowing and labor market indicators suggested that recent job gains might be weakening. More than 14 million people who held jobs in February are no longer employed, Mr. Powell said, warning that it will take a while for workers in certain industries, like restaurants, hotels and travel, to find new jobs.

“There’s probably going to be a long tail where a large number of people are struggling to get back to work,” he said, adding that the Fed was “not even thinking about thinking about thinking about” raising rates.

The labor market rebound “is going to take a while,” he said, and “we’re going to be there for all of that.”

While the Fed took no major actions on Wednesday, Mr. Powell’s comments underlined both the peril ahead for American workers and the reality that interest rates are likely to be very low — making money cheap to borrow — for an extended period of time. Stock prices climbed following his remarks as investors took heart in the Fed’s patient stance.

Ahead of Mr. Powell’s comments, the central bank reiterated in its post-meeting statement that the Fed would keep low rates in place “until it is confident that the economy has weathered recent events.”

The Fed’s announcement came as another round of tense negotiations continued in Congress over providing more support to workers and businesses still struggling amid the pandemic, including whether to extend an extra $600 per week in unemployment benefits that is set to expire this week.

Mr. Powell said the support lawmakers had already provided had been critical for workers and businesses and, in turn, the economy. While he did not weigh in on how high unemployment insurance benefits should be set, he said it would be important to help the large number of workers who were likely to be displaced even if the economy reopened successfully.

“There won’t be enough jobs for them — those people will need support,” he said, noting that government policy so far has “kept people in their homes, it’s kept businesses in business.”

Mr. Powell said both Congress and the central bank would need to do more in the months ahead.

Since March, the Fed has put in place a series of measures to help cushion the economic fallout as businesses close or reduce capacity and as shoppers stay home from malls and movie theaters to control the spread of the coronavirus. The central bank has rolled out nine emergency lending programs, which are meant to keep credit flowing to businesses and state and local governments, and is purchasing government-backed bonds to keep markets functioning normally. It has slashed interest rates to rock bottom to entice borrowing and spending.

On Tuesday, officials announced that they would extend their emergency lending programs through the end of the year. Seven of the programs were initially set to expire around the end of September, but could still be needed past that as coronavirus cases have continued to rise.

The Fed said on Wednesday that it would also extend its programs meant to keep dollar funding readily available to foreign central banks through March.

Mr. Powell said it was important that the facilities stay in place “until we’re very confident that the turmoil from the pandemic and the economic fallout are behind us.”

That could take time. The unemployment rate, while falling, remains historically high at 11.1 percent. Initial jobless claims ticked up last week after months of gradual improvement, stoking concerns that the economy might be backsliding. Data suggest that many businesses are beginning to close permanently.

The job losses are hitting disadvantaged communities particularly hard. The Fed’s own surveys have shown that poorer people were more likely to lose jobs, and those with less education often did not have the option to work from home. The jobless rate for Black workers has skyrocketed to more than 15 percent, and the unemployment rate for Black men continued to tick up in June even as the rate for other racial and gender groups began to fall.

Mr. Powell acknowledged the unequal brunt of the pandemic on Wednesday, and said that what the Fed can do is focus on fostering a strong labor market.

“What we’re trying to do is create an environment, in the financial markets and in the economy, where those people have the best chance they can have to go back to work to their old job or to a new job,” Mr. Powell said.

While Fed officials’ June economic projections suggested that they expected unemployment to fall below 10 percent by the end of the year, based on the central forecast, policymakers made it clear that conditions were extremely uncertain. The recent surge in infections could temper the more optimistic takes.

The central bank’s policies do seem to be offering support, at least around the edges. House buying has ticked up, fueled by cheap mortgage rates, and the U.S. homeownership rate is now at levels last seen before the 2008 financial crisis.

Key credit markets have calmed down after a disorderly March and April, as has the market for U.S. government debt.

While investors expect the Fed to eventually make a more concrete commitment to maintaining low rates for months or years — by pegging them to the unemployment or inflation rate, or by pledging to keep rates low until a calendar date — Mr. Powell said on Wednesday that conversations about such approaches would continue at future meetings.

He also said the Federal Open Market Committee’s longer-run framework review, which could guide the central bank’s strategies, would be completed in the near future. Some economists took that news to mean that more action is coming at the Fed’s Sept. 15-16 meeting.

“The July F.O.M.C. meeting was expected to be a placeholder event until more important decisions are made at the next meeting in September,” Michael Feroli, the chief U.S. economist at J.P. Morgan, said in a note. “The committee met those expectations.”

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Trump’s Hot-Button Fed Pick Faces Senate Committee Vote This Week

WASHINGTON — Judy Shelton, an unorthodox economist who was an adviser to President Trump’s 2016 campaign, could move one step closer to a seat on the Federal Reserve’s Board of Governors this week.

While her fate is far from guaranteed, the Senate Banking Committee is expected to approve Ms. Shelton’s nomination on Tuesday, putting her one simple-majority vote in the full Senate away from confirmation at a moment when the central bank is employing vast powers that she has a track record of questioning.

Opponents of Ms. Shelton’s nomination say confirming her would place the Fed at risk of politicization while it tried to rescue the pandemic-hit economy. Democrats on the committee have called for a second confirmation hearing in light of the crisis so that they can get her views on the current response.

While her nomination seemed shaky in the wake of her mid-February Banking Committee hearing, Republican opposition has slowly crumbled. Senators Patrick J. Toomey of Pennsylvania, Richard C. Shelby of Alabama and John Kennedy of Louisiana were initially skeptical. Mr. Toomey has since said she allayed his concerns, and Mr. Shelby has said he will go along with his Republican colleagues. While Mr. Kennedy has not publicly made up his mind, many analysts saw the scheduling of the vote as a sign of his likely support.

Ms. Shelton’s bid can advance to the full Senate without any support from the 12 Democrats on the committee so long as all 13 Republicans back her. Her nomination will come to a vote alongside Christopher Waller’s. Mr. Waller, the research director at the Federal Reserve Bank of St. Louis, was also nominated by Mr. Trump to the seven-seat Fed board. Mr. Waller, a more traditional nominee, is expected to clear the committee easily.

Ms. Shelton has become the focus of criticism in part because she flip-flopped on key policy positions after Mr. Trump was elected, moving quickly from supporting higher interest rates to favoring lower ones, in line with the president’s view. She has also questioned the basis of central bank independence.

While nominees with close political ties have landed on the Fed board before, Ms. Shelton faces enhanced scrutiny given widespread speculation that Mr. Trump may try to promote her to Fed chair when Jerome H. Powell’s term expires in early 2022.

Ms. Shelton also has a long record of supporting a return to the gold standard, which mainstream economists see as a nonstarter because it would be so economically harmful. She recently backed partly away from that position.

Sarah Boom Raskin, a former Fed governor and top Treasury official, said in an email: “The economic moment right now is too precarious to be rolling the dice on a person who has not wrestled with the current challenges of managing an economy that has been shocked by a pandemic, and whose views have not been fully articulated or reconciled with prior views.”

Ms. Shelton has at times questioned the Fed’s basic functions.

In an opinion piece written for The Wall Street Journal in the middle of the 2008 financial crisis, she criticized the practice of allowing interest rates “to be fixed by a central committee in accordance with government objectives.”

“We might as well resurrect Gosplan, the old Soviet State Planning Committee, and ask them to draw up the next five-year plan,” she continued. Months later, in early 2009, she led a column with the sentence: “Let’s go back to the gold standard.”

Credit…Erin Schaff/The New York Times

At her Senate committee hearing in February, Ms. Shelton said that she “would not advocate” going back to a “prior historical monetary arrangement.” She said that she had looked at historical monetary systems for valuable insights, but that “money only ever moves forward.”

She said, however, that having a “stable, level, international monetary playing field” would support free trade.

Ms. Shelton was previously confirmed as the United States director of the European Bank for Reconstruction and Development, though she regularly missed the overseas meetings for the international body. She said during her February hearing that she had done so because she had been in Washington for other meetings.

Ms. Shelton’s supporters say she would add intellectual diversity to the Fed, with some implying that she might lean against growth in the central bank’s balance sheet — which has expanded as the Fed buys securities and rolls out credit programs to keep markets calm. While she has kept a low profile since the February hearing, Ms. Shelton has occasionally posted comments on Twitter, including on the importance of price stability and on issues related to cryptocurrency.

One question that analysts are pondering is what version of Ms. Shelton will show up for work at the Fed if she gets the job: A gold standard proponent, or not? A supporter of low rates, as she has been during Mr. Trump’s administration, or an inflation hawk?

“It leaves open the question of what exactly she’d be like on the Fed,” said Sarah Binder, a Brookings Institution senior fellow who has written a book on the politics of the central bank. She pointed out that Ms. Shelton’s out-of-the-mainstream ideas were likely to find little purchase among her colleagues, and that individual governors couldn’t make much of an impact on their own.

“You can really imagine her tilting at windmills,” Ms. Binder said.

The question of whether Ms. Shelton would become Fed chair-in-waiting seems to be key. Mr. Trump spent 2018 and 2019 publicly criticizing Mr. Powell, though those critiques have tapered off during the current crisis. Should Mr. Trump win re-election, Ms. Shelton could be a potential replacement for Mr. Powell, since governors are often promoted to the leading position.

“She could do real damage all on her own as chair,” said David Wilcox, a former research director at the Fed.

He also said he worried that she might get in the way of the coronavirus crisis response. “In the moment of crisis, there simply isn’t time to revisit ideas that have been consigned to the dustbin of history,” Mr. Wilcox said.

Ms. Shelton would fill a seat that formerly belonged to Janet L. Yellen; the unexpired term would be up for renewal in 2024. Mr. Waller would fill a seat formerly held by Ms. Bloom Raskin, with a term expiring in 2026.

While neither nominee would exert much influence as an independent governor, their confirmations would give Mr. Trump his handpicked choices for six of the board’s seven spots. Lael Brainard was appointed governor by President Barack Obama, and although Mr. Powell was named to the board by Mr. Obama, Mr. Trump elevated him to the chair.

That stocking of the Fed could also have significant implications for bank regulation, which tends to break more along party lines than does monetary policy. The Powell Fed has been tweaking the rules for the biggest banks around the edges to make them more industry friendly.

Ms. Shelton has a long history of pushing for limited regulation. In one 2009 interview, she blamed government intervention in mortgage markets, rather than bad behavior by banks, for the 2008 financial crisis.

Mr. Trump previously toyed with nominating Stephen Moore, one of his outside economic advisers, and Herman Cain, a former presidential candidate, to the Fed board, but decided not to after their past comments on and actions toward women came to light.

He had earlier nominated a former Fed official, Nellie Liang, to the job, but she faced opposition from the banking industry and eventually withdrew her name. Another nominee, Marvin Goodfriend, also failed to secure the votes necessary for confirmation.

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Mortgage Rates Drop Below 3% for First Time, Tempting Home Buyers

Home loans have never been cheaper, if you can find a willing lender.

The average rate on 30-year fixed mortgages has fallen below 3 percent for the first time, as the Federal Reserve’s recent efforts to pump trillions of dollars into financial markets to support the economy during the pandemic translate into lower consumer borrowing costs.

Freddie Mac’s nationwide survey of mortgage rates, released on Thursday, showed the average on a 30-year mortgage at 2.98 percent, the first time this key rate has fallen below 3 percent since the government-backed mortgage finance firm began publishing the data in 1971.

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It was the latest in a string of record-low readings for the cost of home loans, and a rare bright spot for the U.S. economy. Nearly 15 million jobs have disappeared since the coronavirus pandemic exploded in March. Gross domestic product is expected to contract in the second quarter more than it ever has before.

But for those who are still receiving a paycheck, the collapse in mortgage rates has suddenly made homeownership more affordable, analysts and economists say.

“If you have your job, you’ve got your financial house in order — gosh, this is a great time to go and buy a home because mortgage rates are dirt cheap,” said Frank Nothaft, chief economist at CoreLogic, a real estate research firm.

The public has noticed. Mortgage applications, which fell at the start of the pandemic, have bounced back to some of the highest levels since the 2008 housing bubble burst.

The vast majority have been for refinancings, which allow owners to cut their monthly housing payments, freeing up cash for spending elsewhere. But record-low rates are stimulating more activity from first-time home buyers, too.

“People are taking advantage of these low rates not only to refinance but also to buy homes,” said Laurie Goodman, co-director of the housing finance policy center at the Urban Institute. “You’ve got a lot of first-time home buyers in the queue who see this as their opportunity.”

The savings are real. For a mortgage in the amount of the national median home price, roughly $285,000, the decline in rates during the last year would save more than $100 a month in payments, and roughly $50,000 over the course of the loan. In higher-cost coastal areas, the savings can be far more substantial.

On Wednesday, the Fed’s anecdotal report of economic conditions across its 12 districts consistently spotlighted demand related to low mortgage rates as one of the few bright spots in the American business landscape.

“Low mortgage interest rates encouraged undecided buyers to ‘get off the fence,’” said the section of the Fed’s report prepared by its Cleveland branch. “Residential realtors suggested that demand for existing properties was robust as well, but a shortage of listings constrained sales.”

Such reactions from consumers is precisely the way monetary policy — in this instance, the Fed’s engineering of lower interest rates — is supposed to work, stimulating activity in rate-sensitive sectors of an economy in an effort to offset weakness elsewhere.

A boom in refinancing lowers expenses for homeowners, freeing up cash for other purchases. An increase in demand from new home buyers can spur activity in the home building industry, lifting employment in construction.

Analysts and economists say it’s too early to tell if a sustainable cycle of this sort is emerging. But at the very least, the Fed’s efforts to support the economy are having an effect.

“It would be troubling if the Fed had cut interest rates to zero and we were not seeing more demand for interest-rate-sensitive consumption,” said Ernie Tedeschi, an economist with Evercore ISI, a macroeconomic advisory firm. “So the fact that we are is a reassuring sign that at least a piece of monetary policy is working as intended.”

That said, the housing market is far from immune from the nation’s economic turmoil. CoreLogic data shows that a record-high level of mortgages — 3.4 percent — fell into delinquency in April, higher than during the worst of the 2008 crisis.

Such numbers have prompted some lenders to tighten their standards for new home loans, meaning that while average rates are at record lows, some potential borrowers are likely to pay more or find themselves unable to qualify.

“They’re looking at ways to tighten the credit a little bit to account for the fact that we don’t know what the risks are going forward with the economy and unemployment and potentially delinquencies,” said Guy Cecala, chief executive and publisher of Inside Mortgage Finance, a trade publication.

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Federal Reserve Minutes Show a Litany of Reasons to Worry About Economy

WASHINGTON — Some businesses will not make it through the pandemic-spurred economic crisis. Consumer spending will not fully bounce back even into next year. And there is a serious chance of a double-dip downturn that could permanently scar the American labor force.

Those are some of the major points from the minutes released Wednesday of the Federal Reserve’s two-day meeting in which officials and central bank staff paint a bleak picture of what lies ahead for the American economy.

In the time since that gathering, held June 9 and 10, officials — including Jerome H. Powell, the Federal Reserve chair — have stressed that the economic outlook is deeply uncertain and have warned that containing the virus pandemic will be crucial to a recovery. But the minutes offer a glimpse into the concerns that occupied the Fed’s full slate of policymakers, 17 in all, when they last met.

The officials cited “extraordinary” uncertainty and “considerable risks” to the outlook. A number saw “substantial likelihood” of additional waves of virus outbreaks, with the potential to cause a drawn-out period of economic weakness. And they were concerned that government support could end too early or prove too small to handle the crisis at hand.

“Among the other sources of risk noted by participants were that fiscal support for households, businesses, and state and local governments might prove to be insufficient,” the minutes state.

Fed officials took some comfort in the fact that hiring rebounded in May, with unemployment dropping to 13.3 percent from 14.7 percent, instead of rising as expected. They said the “data suggested that April could turn out to be the trough of the recession.”

Even so, they said it was too early to draw any firm conclusions — and they remained worried about the future.

“The recovery in consumer spending was not expected to be particularly rapid beyond this year, with voluntary social distancing, precautionary saving, and lower levels of employment and income restraining the pace of expansion over the medium term,” according to the minutes.

Mr. Powell has repeatedly warned that consumers will shy away from high-touch activities — think packed restaurants, concerts and casinos — until health risks subside, making a full recovery unlikely until a cure or effective treatment to the coronavirus is found.

His colleagues said voluntary social distancing and structural shifts rooted in the pandemic “would likely mean that some proportion of businesses would close permanently,” even as states moved toward reopening.

The Fed’s June meeting was held as reopening plans swung into high gear in many states, but before a recent resurgence in coronavirus cases in parts of the South and West. There were about 23,000 new cases in the United States on June 10, New York Times data shows. That number skyrocketed to about 48,000 on June 30.

Fed officials have since suggested that a rising number of cases could hamper the economic healing process.

“I would hesitate to call this a recovery, because ultimately the virus will determine the pace at which we can go,” Mary C. Daly, president of the Federal Reserve Bank of San Francisco, said at a Washington Post online event on Wednesday. “A V-shaped recovery is certainly not something that I think is happening.”

Policymakers voiced concerns in June that if the downturn persisted, it could permanently scar the economy by leaving workers out of jobs for long spells, eroding their skills. The minutes also show that they thought virus mitigation strategies might reduce productivity, hampering future growth.

  • Frequently Asked Questions and Advice

    Updated June 30, 2020

    • 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.

    • Is it harder to exercise while wearing a mask?

      A commentary published this month on the website of the British Journal of Sports Medicine points out that covering your face during exercise “comes with issues of potential breathing restriction and discomfort” and requires “balancing benefits versus possible adverse events.” Masks do alter exercise, says Cedric X. Bryant, the president and chief science officer of the American Council on Exercise, a nonprofit organization that funds exercise research and certifies fitness professionals. “In my personal experience,” he says, “heart rates are higher at the same relative intensity when you wear a mask.” Some people also could experience lightheadedness during familiar workouts while masked, says Len Kravitz, a professor of exercise science at the University of New Mexico.

    • 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.

    • What is pandemic paid leave?

      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.

    • Does asymptomatic transmission of Covid-19 happen?

      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.

    • What’s the risk of catching coronavirus from a surface?

      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.

    • How does blood type influence coronavirus?

      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.

    • 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.)

    • 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.