Federal Reserve moving from rescue to recovery

After a flurry of unprecedented actions as the COVID-19 pandemic locked down the U.S. economy, the Federal Reserve has been more characteristically quiet in recent weeks. It may have disappeared from the daily headlines, but the central bank remains central to the recovery in the stock market and beyond.

The Fed launched its economic rescue mission in mid-March, first by cutting its target interest rate to zero. It also returned to buying bonds to help provide liquidity to the credit markets. Those were just the first of what expanded into nine additional strategies designed to keep the American economy from collapsing. The public health measures to slow the spread of the virus led to widespread job cuts and a historic drop in consumer demand. About half of the Fed’s strategies have yet to be fully deployed.

The mere announcements of the various rescue efforts worked, at least by the narrow measurement provided by the stock market. The NASDAQ Composite has returned to within one percent of its pre-COVID-19 high. The rescue rhetoric also helped keep the credit markets moving. As of mid-May, the Fed had not launched its plan to buy corporate bonds, even though the strategy was announced two months earlier. Even without the Fed buying corporate bonds, companies, including troubled retailer Macy’s, have found buyers for new IOUs.

Evidence of the Fed’s strategies working in the real economy is more elusive. First-time claims for unemployment benefits have fallen over the past several weeks. It is encouraging that each week fewer people are filing their unemployment paperwork for the first time. However, almost 22 million Americans are still filing for unemployment payments week after week. Almost 1 in 5 working Americans are officially unemployed. Thousands more are temporarily laid off or have taken pay cuts.

The Fed’s interest rate setting committee meets in the week ahead. It is not expected to announce any new rescue plans when it releases its statement and new economic projections Wednesday afternoon (June 10). Instead, investors will focus on how the agency’s efforts may accelerate an economic recovery.

Tom Hudson hosts “The Sunshine Economy” on WLRN-FM, where he’s vice president of news. Twitter: @HudsonsView