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Fed Chairman Powell says tools to fight recession are limited

Fed Chairman Powell says tools to fight recession are limited
Federal Reserve Chairman Jerome Powell testified before the House Financial Service Committee on Tuesday, outlining plans to deal with a potential recession. He addressed the Senate Banking Committee on Wednesday. Photo by Kevin Dietsch/UPI | License Photo

Feb. 12 (UPI) -- The central bank may not have adequate tools to combat a recession, Federal Reserve Chairman Jerome Powell said in testimony ending Wednesday.

Powell addressed the House Financial Services Committee on Tuesday and the Senate Banking Committee on Wednesday. Although the economy remains strong by several benchmarks, there are fears of an eventual economic contraction.

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The current low level of interest rates "means that it would be important for fiscal policy to support the economy if it weakens," Powell said Tuesday, a suggestion that lowering interest rates, the typical remedy for a recession, may not work. It also suggested that the Federal Reserve, a politically independent institution accustomed to combating economic contractions, may need the help of Congress through tax cuts and spending increases.

With interest rates currently between 1.5 and 1.75 percent, there is little room, for a reduction. While it is possible to bring interest rates to zero and even below, a tactic used by Japan and the Eurozone, Powell said, "In the U.S. context, that's not a tool we're looking at."

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On Wednesday Powell outlined plans to fight an economic downturn with qualitative easing, or QE. The process involves buying large amounts of government debt to drive down long-term interest rates. He also recommended forward guidance, the term for communicating clearly with markets about interest rate policy.

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He again acknowledged that cutting interest rates would not be helpful, saying, "We will have less room to cut."

Powell urged the committee to put the federal budget on a sustainable path during periods of a strong economy, and noted the $23 trillion national debt.

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When asked what level of debt he would find worrisome, Powell answered, "I would be concerned now."

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