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Fed Officials Debated Rate Liftoff in 2015, Offering Lessons for Today

The Federal Reserve lifted interest rates from near-zero in 2015 after years of holding them at rock bottom following the 2008 global financial crisis. Transcripts from their policy discussions, released Friday, show just how fraught that decision was.The debate that played out then is especially relevant at a time when the central bank has again slashed interest rates practically to zero, this time to fight the pandemic-induced economic downturn. The concerns that officials voiced over lifting rates in 2015 — that inflation would not pick up, and that the labor market had further to heal — proved prescient in ways that will inform policy …

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The Year the Fed Changed Forever

WASHINGTON — As Jerome H. Powell, the Federal Reserve chair, rang in 2020 in Florida, where he was celebrating his son’s wedding, his work life seemed to be entering a period of relative calm. President Trump’s public attacks on the central bank had eased up after 18 months of steady criticism, and the trade war with China seemed to be cooling, brightening the outlook for markets and the economy.Yet the earliest signs of a new — and far more dangerous — crisis were surfacing some 8,000 miles away. The novel coronavirus had been detected in Wuhan, China. Mr. Powell and his colleagues were …

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Fed Leaves Rates Unchanged and Commits to Ongoing Bond Purchases

WASHINGTON — Federal Reserve officials pledged to help the economy through the painful pandemic era, making clear at their final meeting of the year that the central bank would continue cushioning businesses and households by keeping interest rates at rock bottom and buying government-backed debt for the foreseeable future.The Fed’s chair, Jerome H. Powell, said at a news conference after the meeting that the central bank would keep its effort to bolster demand going “for some time,” adding that the “the next few months are likely to be very challenging.”The Fed cut interest rates to near-zero in March …

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Janet Yellen Set to Lead Treasury Department Under Biden

WASHINGTON — Janet L. Yellen became an economist at a time when few women entered the profession and fewer still rose in a male-dominated environment. She is now poised to become the first female Treasury secretary and one of few people to ever have wielded economic power from the White House, the Federal Reserve and the president’s cabinet.

Her expected nomination would come as rebuilding a U.S. economy battered by the coronavirus pandemic and saddled with high unemployment presents a central challenge for President-elect Joseph R. Biden Jr.’s administration.

While Ms. Yellen is not the type of firebrand nominee some progressives might have hoped for — she has warned that the United States is borrowing too much money, a fact that some liberals count against her — she has paid consistent, careful attention to inequality and labor market outcomes, even when doing so earned her backlash from lawmakers.

As the chair of the Federal Reserve from 2014 to 2018, Ms. Yellen also oversaw an extremely slow set of interest rate increases as she and her colleagues tested whether unemployment could fall further without leading to higher prices. Her patience drew criticism from inflation-wary economists at the time, but the policies laid the groundwork for a strong labor market and a record-long expansion that drove unemployment to its lowest rate in 50 years before the pandemic turned the world upside down.

Senator Elizabeth Warren of Massachusetts, one of the most prominent progressive Democrats in Congress, wrote on Twitter that Ms. Yellen “would be an outstanding choice for Treasury Secretary.”

But she faces a steep challenge: As Treasury secretary, Ms. Yellen will be at the forefront of navigating the economic fallout created by a pandemic that continues to inflict damage. While growth is recovering from earlier coronavirus-related lockdowns, infections are climbing and local governments are restricting activity again, most likely slowing that rebound.

Ms. Yellen has been a clear champion of continued government support for workers and businesses, publicly warning that a lack of aid to state and local governments could slow recovery, much as it did in the aftermath of the Great Recession, when Ms. Yellen was leading the Fed.

“While the pandemic is still seriously affecting the economy, we need to continue extraordinary fiscal support,” she said in a Bloomberg Television interview in October. She called fiscal support early in the crisis “extremely impressive” but noted that key provisions had lapsed.

Unlike the independent Fed, Ms. Yellen as Treasury secretary would find herself in a much more political role — one that is likely to require negotiating with a Republican-controlled Senate. With Mr. Biden expected to push for additional economic aid, Ms. Yellen would be central to brokering a stimulus deal in a politically divided Congress that has so far failed to agree on another round of aid.

Ms. Yellen declined to comment on her expected nomination, which was reported earlier by The Wall Street Journal.

She would be the first woman to hold a job that has been dominated by white men — like Alexander Hamilton — throughout its 231-year history and would have held the government’s top three economic jobs, including leading the White House Council of Economic Advisers during the Clinton administration.

A former academic who taught at the University of California, Berkeley, Ms. Yellen was also the president of the Federal Reserve Bank of San Francisco, a Fed governor and the Fed vice chair before becoming the central bank’s first female chair.

Ms. Yellen said she wanted to be reappointed when her term as Fed chair ended in 2018, but President Trump, eager to install his own pick, decided against renominating her.

By replacing Ms. Yellen, Mr. Trump broke with precedent. The previous three Fed chairs had been reappointed by presidents of the opposite political party.

Instead, Mr. Trump chose Jerome H. Powell, the Fed’s current chair, with whom Ms. Yellen could soon be working closely as Treasury secretary. The two still talk, and Ms. Yellen has consistently praised Mr. Powell’s performance at the Fed, suggesting they would have a good relationship.

Born in Brooklyn in 1946, Ms. Yellen was raised in Bay Ridge, a middle-class neighborhood across the waterfront from Staten Island. Her mother was a teacher who stayed home to raise Ms. Yellen and her brother. Her father was a family doctor. She was both valedictorian and editor of the newspaper at her high school.

She attended Brown University and went on to receive a doctorate from Yale. In an interview in 2013 with Simon Bowmaker, an economics professor at New York University, Ms. Yellen explained her rationale for becoming an economist, saying she had always liked the rigor of math but economics offered something more.

“I care about people,” she said. “I discovered that economics was of enormous relevance to our lives and had the potential to make the world a better place.”

She met her husband, George A. Akerlof, an economist who is now a Nobel laureate, while working in a research position at the Fed in 1977.

Ms. Yellen has spent her post-Fed years at the Brookings Institution, occupying an office close to Ben S. Bernanke, who preceded her as Fed chair, and other former Fed officials. They call their corridor the “F.O.M.C., Former Open Market Committee,” a play on the central bank’s rate-setting Federal Open Market Committee.

Ms. Yellen is a Keynesian economist, which means she believes markets have imperfections and sometimes need to be rerouted or kick-started by government intervention.

As Fed chair, she gave important speeches — including one at the storied annual conference in Jackson Hole, Wyo. — advocating continued watchfulness and wariness when it came to financial overhauls instituted after the 2008 crisis. She has struck a concerned tone about regulatory rollbacks under the Trump administration.

“It is certainly appropriate to simplify regulations that impose unnecessary burdens, particularly on small community banks,” she said in 2019. “But I’m greatly concerned that the regulatory work needed to address financial stability risk has stalled. There have been some worrisome reversals.”

She is relatively moderate on many topics, including trade. Mr. Akerlof recalled in a biographical note in 2001 that when he met her: “Not only did our personalities mesh perfectly, but we have also always been in all but perfect agreement about macroeconomics. Our lone disagreement is that she is a bit more supportive of free trade than I.”

Ms. Yellen has been a major influence on leading officials at the Fed. John C. Williams, who worked for her in San Francisco, now leads the Federal Reserve Bank of New York. Mary C. Daly, who now leads the San Francisco Fed, cites Ms. Yellen as a key mentor.

That, along with Ms. Yellen’s experience working with Mr. Powell, could help facilitate the kind of close relationship needed between the Fed and Treasury, which are collaborating on a variety of crisis response programs.

Henry M. Paulson Jr., who served as Treasury secretary under President George W. Bush, praised the selection. He said Ms. Yellen “will have a tough job ahead of her, but she has the experience, talent, credibility and relationships with members of Congress on both sides of the aisle to make a real difference.”

While the other leading contenders for the job also had extensive experience that spanned fiscal and monetary policy, Ms. Yellen was seen as well placed to make it through Senate confirmation, even if Republicans maintain control of the chamber.

Lael Brainard, another top candidate for the role, is the only remaining Fed governor from the Democratic Party on the seven-member board, which currently has two open slots. She might have been difficult to replace at the Fed: Nominees have been hard to confirm over the past decade, and the Senate may remain under Republican control.

While leading the Fed, Ms. Yellen at times had a testy relationship with congressional Republicans. In one instance, Representative Mick Mulvaney, then a South Carolina Republican, said Ms. Yellen was overstepping her boundaries by talking about inequality.

“You’re sticking your nose in places that you have no business to be,” Mr. Mulvaney said at a hearing in 2015.

But in many ways, those conflicts underline how much Washington has changed over the past five years. Fed officials now regularly talk about inequality, entirely unchallenged. The central bank has formalized policies much like Ms. Yellen’s patient approach to interest rate-setting as its official stance, which it explicitly hopes will foster more inclusive growth.

“It seems like a pretty subtle shift to most normal human beings,” Ms. Yellen said of that move. But “most of the Fed’s history has revolved around keeping inflation under control. This really does reflect a decisive recognition that we’re in a very different environment.”

Reporting was contributed by Michael D. Shear, Jim Tankersley, Alan Rappeport and Thomas Kaplan.

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Fed Holds Rates Steady and Signals Continued Wariness

WASHINGTON — The Federal Reserve chair, Jerome H. Powell, said on Thursday that the labor market’s recovery was only halfway complete and that more government support would likely be needed to return the economy to full strength, calling the recent rise in virus cases “particularly concerning.”

In remarks after the central bank’s November meeting, Mr. Powell reiterated that the economic outlook is “extraordinarily uncertain” and pledged to continue supporting growth for as long as needed.

Economic progress has exceeded initial expectations amid state and local reopenings, but the recovery remains incomplete, progress is moderating and risks loom ahead. Mr. Powell noted that the U.S. is “a long way from our goals, and we’re halfway there on the labor market recovery, at best.”

The Fed is trying to coax the economy back to full health. It left interest rates unchanged at its November meeting, having slashed them to near-zero in March, and it reiterated that it plans to keep them low for the foreseeable future. The central bank has also been buying huge quantities of government-backed bonds — about $120 billion a month, recently — in an attempt to keep markets functioning smoothly and to stimulate demand. It said it would keep the purchases up at that pace “at least.”

Low rates do seem to be powering a recovery. Housing has been a bright spot, for instance, as buyers scramble to purchase new and existing houses. But government spending programs have also been an important driver of the rebound so far, keeping money flowing to businesses and households.

Now further economic progress is teetering on a precipice as U.S. coronavirus cases rise and those government support programs run dry. The outcome of this week’s presidential and congressional election remains uncertain, making it hard to guess whether and when the government will renew programs that created forgivable small business loans, expanded unemployment insurance and provided other safeguards that have helped to keep businesses and families afloat.

Mr. Powell said the two biggest economic risks right now are the “further spread of the disease” and the likelihood that households will run through the savings they were able to accumulate as a result of government programs early in the pandemic, including stimulus checks and enhanced unemployment benefits.

“The fiscal policy actions that have been taken thus far have made a critical difference,” Mr. Powell said. “Even so, the current economic downturn is the most severe in our lifetimes.”

While the Fed is prepared to act as needed to support the recovery, Mr. Powell reiterated that more fiscal support may be needed to mitigate looming dangers, which also include bankruptcies and long-term labor market scarring.

“We’ll have a stronger recovery if we can just get at least some more fiscal support, when it’s appropriate and at the size Congress thinks is appropriate,” he said.

The Fed studiously avoids weighing in on politics in an effort to protect its independent status, which is one reason Mr. Powell is hesitant to be prescriptive when it comes to what Congress should do. Asked about the still-undeclared presidential election and whether it came up during policy deliberations, Mr. Powell said “the election comes up now and again, but it is not at all a central focus of the meeting, not at all.”

There is still more that the Fed could do to stimulate the economy, and Mr. Powell, in response to a question, said the central bank is not “out of power or out of ammo.”

While Mr. Powell did not commit to any new efforts, he noted that the Fed could tweak its bond-buying program. The central bank is pondering what that might look like, and the November meeting was about “having a good discussion about how to think about those various parameters,” he said.

Economists say officials could reinforce their pledge to keep interest rates low for an extended period of time. They could also change up the communication around the Fed’s bond purchases, or shake up the program’s composition so that purchases tilt more toward longer-dated debt, all with the goal of making credit cheaper and keeping money flowing into the economy.

Yet such measures are no panacea. They benefit people who are in a position to buy houses and cars and can help the economy to recover in the medium to long term. Fed policies are not suited to get money straight into the hands of the workers who have lost their jobs. Such targeted relief would have to come from Congress and the White House.

Mr. Powell also faced questions about the central bank’s suite of emergency lending programs. Several of the efforts are backed by funding from the Treasury Department and are set to expire in December, unless Mr. Powell and Treasury Secretary Steven Mnuchin agree to extend them.

“We’re just in the process of turning to that question,” Mr. Powell said, noting that it’s a decision that they “have to make and will make” jointly with the Treasury Department.

Mr. Mnuchin suggested in a recent response to congressional questioning that he favors allowing at least one facility, which buys municipal bonds, to expire.

If a coronavirus vaccine is being rolled out in the coming weeks, that could mean that the Treasury Department would be less inclined to extend the facilities. It is also possible that if Mr. Trump’s re-election bid fails, he could block the facilities from being reauthorized so that Joseph R. Biden Jr. has fewer economic stimulus tools at his disposal.

The Treasury Department did not respond to a request for comment.

Alan Rappeport contributed reporting.

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Federal Reserve Meets Amid Major Uncertainties

WASHINGTON — The Federal Reserve is meeting on the heels of an undecided presidential election and just before the October jobs report, which analysts expect to paint a complicated picture of an economy that is recovering, but which faces slowing progress and big risks.

Policymakers are likely to adopt a wait-and-see approach at the conclusion of their two-day meeting on Thursday, as they face an uncertain outlook and because they will want to avoid inserting the Fed into the election story line. But they could use the deliberations this week to lay the groundwork for future action.

The economy, which had bounced back swiftly as state and local lockdowns eased this spring, has seen its progress weaken as the pandemic persists and government support for households and businesses expires. Virus cases are surging again, leaving hospitals in some cities overburdened and raising the possibility of renewed closings in some jurisdictions.

To punctuate the moment of high drama, Americans headed to the polls this week, and the outcome of the election remains uncertain. It seems possible that Joseph R. Biden Jr. could capture the White House while Republicans retain the Senate, leaving the government divided and possibly cooling the prospects for a big relief package.

The increasingly perilous economic outlook and shifting political landscape could shine a renewed spotlight on the Fed. If fiscal support is not forthcoming, its policies could be crucial to helping the recovery limp through the pandemic this winter. Yet another key question lingers: Even if policymakers want to act decisively, how much more can they do with interest rates already near zero?

“They’re not completely out of ammunition,” said David Wilcox, a former director of the research and statistics division at the Federal Reserve Board in Washington. But “by and large, at this point,” he added, “the onus is on fiscal policy to step up and rescue a situation that I am pretty concerned about.”

Here’s what to look out for at this week’s meeting.

The Fed cut interest rates to near zero in March, announced later that month that it was willing to buy unlimited quantities of bonds to soothe troubled markets, and has since June pledged to buy “at least” $120 billion in government-backed bonds each month.

The central bank clarified in September that those purchases were meant to bolster lending and spending, in addition to supporting markets, but analysts are looking for more.

Many economists believe Fed officials could extend the duration of their bond portfolio — meaning that they will start buying longer-dated bonds in a bid to push down rates on such securities. The point is to make many types of credit cheaper, which could help support borrowing and demand. Minutes from the Fed’s September meeting suggested that officials might discuss and refine communication around their balance sheet plans at coming meetings, but few economists expect major moves this soon.

“The committee does not seem ready, and likely thinks that to ease immediately after the vote would look political and it would be better off waiting for the dust to settle,” economists at Evercore ISI wrote in a note previewing the meeting.

The Fed introduced a suite of emergency lending programs to keep markets functioning and credit flowing as critical parts of the financial system seized up in March and April. Some have been very successful, allowing money to flow in corporate debt markets. Other, never-before-tried efforts — including a midsize business lending program and a municipal bond-buying effort — have been only lightly used.

Now, the programs backed by funding from pandemic relief legislation are at a crossroads. They are set to expire at the end of December, and the Fed chair, Jerome H. Powell, and the Treasury secretary, Steven Mnuchin, must decide whether to extend them into 2021. In responses to congressional questioning, Mr. Mnuchin has suggested that he is in favor of allowing least one — the municipal bond program — to wrap up.

There are big questions around what it would mean if the whole suite of programs were allowed to sunset. On one hand, markets are operating smoothly now, and the Fed has demonstrated a willingness to step in that may keep them calm even in the absence of actual programs. Yet eliminating the formal backstop just as the nation plunges into renewed stress, with election uncertainty and virus cases on the rise, could undermine confidence.

“Most people seem to assume they’ll renew them automatically,” said Roberto Perli of Cornerstone Macro. “It’s an issue the market hasn’t digested well yet.”

Credit…Stefani Reynolds for The New York Times

The news conference could be the star of this meeting’s show. Given the expected lack of concrete action, the tone Mr. Powell strikes during his virtual postmeeting remarks, which will start around 2:30 p.m., could be the most important thing to come from the November gathering.

He is likely to continue to pledge a very long period of rock-bottom interest rates. And he may sound at least somewhat worried, given the economic backdrop.

It is worth noting that while the Fed chair has historically had an early glimpse of critical numbers from the jobs report — the White House Council of Economic Advisers has sent data on participation, unemployment and wages the night before — Mr. Powell would not have the figures in hand by the time of the Fed decision and news conference. People familiar with the process said that the reports generally came in later in the day.

What data Mr. Powell will have in hand are wobbling.

Manufacturing gauges have shown improvement, but one services industry tracker has begun to soften and data from the private payroll processing company ADP suggest that private sector employment gains are weakening. While those figures do not always tie in closely with the official government report, the median economist in a Bloomberg survey expects that job gains slowed to about 590,000 in October — relatively slow progress at a time when millions remain unemployed.

Mr. Powell may continue to suggest that additional government support for hard-hit households is necessary, as he has taken to doing, but prospects for a big package seem to have dimmed.

“Everyone was counting on a pretty sizable fiscal package,” Mr. Perli said in an interview Wednesday morning. “Who’s going to pick up the slack? There’s going to be more burden on the Fed.”

He noted that while it was unclear how much, and how effectively, the central bank could help at this point, “that doesn’t mean the Fed can say, ‘There’s nothing I can do here, goodbye.’”

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