Fed's Eric Rosengren says the central bank 'acted quickly' but Congress will need to do more

Key Points
  • Boston Fed President Eric Rosengren said the central bank took strong measures to brace the economy and the markets against the coronavirus outbreak.
  • He still expects the economy to deteriorate, with unemployment likely to "rise dramatically."
Rosengren: Expect unemployment rate to rise dramatically
Rosengren: Expect unemployment rate to rise dramatically

Boston Federal Reserve President Eric Rosengren said Wednesday the central bank moved rapidly to address deterioration across multiple parts of the financial market that were crippled due to the coronavirus crisis.

"At the central bank we're focused on addressing, and blunting, the economic effects of the pandemic," Rosengren said in remarks prepared for an online forum with the Boston Chamber of Commerce. "The Federal Reserve has acted quickly to address spillovers from the economic disruption."

However, he said more will need to be done, particularly in Congress, which recently passed the $2 trillion rescue CARES Act. 

"I think we are probably going to have to do more than what was jut in the CARES Act, but I think it was a very good start in trying to mitigate some of the costs," Rosengren said in later remarks.

He expressed particular worry about some of the more vulnerable members of society at the lower end of the economic spectrum. Legislative action should focus on "simplicity and speed" in getting help to those who need it, he said. 

He also said he thinks future federal steps will have to direct aid directly to states while small business also will need more help.

In addition to the government aid, he also encouraged a general community focus on nonprofit organizations like food pantries and homeless shelters.

"I'm hopeful that as we are thinking about other legislative remedies that future legislation really thinks hard of how we can mitigate the effects of the pandemic on our must vulnerable populations," Rosengren said.

Even withe help from Congress and the Fed, Rosengren said the coronavirus will still hit the economy, particularly employment.

The Fed has taken a bevy of measures unprecedented even considering the intervention it took during the financial crisis. The moves include taking benchmark short-term interest rates to near zero, adding a new round of unlimited asset purchases, creating multiple programs aimed at keeping financial markets moving and getting money to businesses and individuals in need.

One such small business lending initiative is under the direct auspices of the Boston Fed.

"It was proving a challenge for the funds to sell high‐quality debt of even the strongest companies and states," Rosengren said. "The Boston Fed opened a facility that lends money to banks, so they can buy these highly-rated assets from money market funds."

Economic activity has sputtered as public health officials instituted social distancing practices to help slow the coronavirus spread.

While providing an important public service, the practice also is "distorting the credit and liquidity flows that underpin our economy, threatening the greater pain of a full‐blown financial crisis," Rosengren said.

Like other Fed officials, he predicted that the economy will suffer as the efforts to contain the virus continue.

"We must continue to adapt as the crisis proceeds, with constant attention to the plight of workers who have been or will be laid off. Unfortunately, we expect the unemployment rate to rise dramatically," he said.