US Fed Chairman Jerome Powell
US Fed Chairman Jerome Powell

Yet the Fed is unlikely to unveil any new emergency programs. Fed officials have already taken a range of extraordinary actions that have propelled them into new corners of the economy and elevated their bond-buying to new heights.

Chairman Jerome Powell will hold his usual news conference - this time virtually, rather than on site - after the Fed issues its latest policy statement at 2 p.m. Eastern time.

Powell will likely fill in details on some of the nine lending programs the Fed has launched to try to aid the economy and to keep rates low in the face of the coronavirus-induced downturn.

The central bank has already slashed its benchmark interest rate to near zero and escalated its purchases of Treasury and mortgage-backed securities to pump cash into financial markets to smooth the flow of credit. It has also said it will buy corporate bonds and lend to states and cities - two actions it has never previously taken.

"The fact that they are operating in those markets is unprecedented," said Nathan Sheets, chief economist at PGIM Fixed Income and a former director of international finance at the Fed.

"They are coming up on the extent of their legal authorities here." Yet this crisis is unlike any other, and it comes against a backdrop of horrific economic data. More than 26 million Americans have sought unemployment benefits since the viral outbreak shuttered much of the US economy in mid-March. Retail sales fell by a record amount in March. Home sales have plunged.

Economists have forecast that the economy may be shrinking at an annual rate of between 30% and 40% in the current quarter and that the unemployment rate could range as high as 20% for April. That would be the highest jobless rate since it was 25% during the Great Depression.

As economic activity has collapsed, inflation has also begun to fall. Economists expect it to drop below 1% by next year, far under the Fed's 2% target level. That poses another problem for the Fed: Declining prices can eventually lead consumers to delay spending, thereby slowing the economy further.

Economists will be parsing the words in the Fed's policy statement and in Powell's news conference for any hint of a policy shift on rates.

At its meeting last month, the Fed had said it will keep rates near zero "until it is confident that the economy has weathered recent events." In the past, the central bank has sometimes set a time frame for future rate hikes In other cases, it has set out conditions, such as having the unemployment rate fall to a certain level before the Fed would consider raising its benchmark rate. But few analysts forecast anything specific Wednesday.

Earlier this month, as part of a $2.3 trillion lending program, the Fed said it would buy municipal bonds issued by state and local governments, up to $500 billion. It also unveiled a Main Street Lending Program, which will lend $600 billion to medium-sized companies of up 10,000 employees.

These loans are intended to support mostly companies that are too large for the government's small business lending program, which targets those with fewer than 500 workers.

Companies that borrow from the Main Street program must "make reasonable efforts" to retain their workers, the Fed says, and cannot repurchase their shares or pay dividends. The Fed has said it will disclose the recipients of its Main Street loans. Still, neither the municipal or Main Street programs have yet started. The Fed has yet to buy any municipal securities or corporate debt. Even so, just the announcements that it will do so have smoothed markets.

Powell will also likely face questions about the challenges raised by these new programs. They have exposed the central bank to concerns that it will inevitably favor some companies or municipalities over others.

The Fed, whose independence is seen as vital to its role in the financial system, has always steered clear of such potentially politicized actions.

It has come under pressure from Congress to help specific sectors. Sen. Ted Cruz, Republican of Texas, wrote Powell on Friday urging that the Fed set up a lending facility specifically for small and medium-sized companies that work with the beleaguered oil and gas industry.

Doing so, though, would likely spur other industries to ask for similar help.

"Why oil and not hospitality? Or some other sector?" Sheets said.

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