U.S. Federal Reserve Preparing For Second Wave Of COVID-19

The U.S. Federal Reserve says it is preparing for the possibility of an economically debilitating second wave of COVID-19 infections this year.

That’s the message Federal Reserve Chairman Jerome Powell plans to deliver when he appears Tuesday before the House Financial Services Committee. In testimony prepared for delivery to the committee, Powell stresses the importance of containing the contagion as the economy recovers from its deepest contraction in decades.

"While this bounce-back in economic activity is welcome, it also presents new challenges -- notably, the need to keep the virus in check," Powell says in his prepared remarks.

Among America’s most-populous states, Texas, Florida and California are experiencing climbing coronavirus cases even while others, including New York, see declines. Overall, counties accounting for between one-third and half of U.S. gross domestic product are suffering from worsening trends in new cases or COVID-19-related deaths, according to research by Deutsche Bank AG.

Federal Reserve Bank of Kansas City President Esther George, in remarks on June 25, said that the U.S. economy is likely to begin recovering in the third quarter, but rising virus cases are a risk to the outlook.

Powell has said that policy makers assumed there wouldn’t be a "substantial second wave" of infections when they penciled in their forecasts for the economy at their last meeting on June 9-10. But he and other officials have made clear they’re primed to do more if a widespread outbreak threatens the economy.

The Federal Reserve has invested about $8.7 billion U.S. in bonds and exchange-traded funds through its Secondary Market Corporate Credit Facility. The facility, among nine emergency programs the Fed has rolled out since mid-March, has a capacity of $250 billion U.S. and is aimed at helping bigger companies cope with the coronavirus contagion.

In explaining why the central bank started buying corporate bonds this month even though the market for such debt has improved substantially, Powell said the Fed wanted to follow through on its commitment to do so and also show it would be able to act forcefully if the economy worsens.

"We just want to be there if things turn bad in the economy," he told the Senate Banking Committee on June 16. "If things go in a negative direction, we want to make sure that we’re there."