Where Does the Fed Go From Here?

Here is today’s Foreign Policy brief: The U.S. Federal Reserve concludes its April meeting today, Brazilian President Jair Bolsonaro names a new justice minister, and a bomb in the Syrian border town of Afrin kills dozens.

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A two-day meeting of the U.S. Federal Reserve’s Federal Open Market Committee (FOMC) culminates today, with all eyes on the bank’s afternoon press conference. Fed Chairman Jerome Powell will discuss the central bank’s latest moves, including its decision on interest rates and how long it plans to continue its aggressive, trillion-dollar maneuvers to keep the U.S. economy from depression.

On Monday, the Fed extended its Municipal Liquidity Facility, a $500 billion lending initiative, to include smaller counties and cities than had initially been given access when the plan was announced on April 9. U.S. states and municipalities are facing a steep budget shortfall in the face of the coronavirus pandemic and the ensuing unemployment crisis.

Will the Fed go negative? With interest rates already at near zero, there’s still room to bring them down further—negative interest rates have already been explored by Japan and the European Central Bank. However, it’s not something Jerome Powell is considering. “We do not see negative policy rates as likely to be an appropriate policy response here in the United States,” Powell told reporters back in March.

U.S. President Donald Trump pushed for negative rates back in September with a view to refinancing U.S. debt. “The Federal Reserve should get our interest rates down to ZERO, or less … It is only the naïveté of Jay Powell and the Federal Reserve that doesn’t allow us to do what other countries are already doing. A once in a lifetime opportunity that we are missing because of “Boneheads,”” Trump wrote on Twitter.

In a Bloomberg op-ed on Friday, Narayana Kocherlakota, a former president of the Federal Reserve Bank of Minneapolis, said the Fed should set interest rates a “quarter percentage point below zero” and worry more about unemployment than concerning itself with the financial stability of banks. “Put crudely, the Fed is giving up on unemployment reductions to help keep banks and their shareholders safer,” he wrote.

Bolsonaro names new justice minister, police chief. Last weekend’s drama left two big gaps open at the top of Brazil’s law enforcement system, after Sergio Moro resigned his position as justice minister and the head of Brazil’s federal police was fired. Brazilian President Jair Bolsonaro named successors on Tuesday: André Mendonça, a former solicitor general, will take over as justice minister, and Alexandre Ramagem, the former head of the Brazilian intelligence agency is the new federal police chief. Ramagem has been accused of being too close to the Bolsonaro family, an allegation that gained new momentum after pictures emerged of him alongside one of Bolsonaro’s sons at a recent New Year’s Eve party.

On Monday, Brazil’s Supreme Court authorized a request from the country’s attorney general to open an investigation into Bolsonaro after his former justice minister alleged the president had attempted to interfere with federal police investigations. Those particular investigations likely involve the president’s sons.

A poll released on Monday shows Brazilians are split on whether Bolsonaro should be impeached. 45 percent support impeachment, but 48 percent are against it. 

Lebanon protests turn violent. Protestors vandalized and set fire to banks in Tripoli on Tuesday as unrest over the country’s battered economy reignited. The Lebanese army was deployed to quell the protestors, firing tear gas and rubber bullets. One man in his 20s died in the melee. “This is not a riot, this is expressing (anger) that the dollar has reached 4,000 Lebanese pounds … How are people going to eat? And this is the holy month of Ramadan,” Abou Hussein, a Tripoli-based activist, told Reuters.

Lebanon was already in financial crisis before the coronavirus pandemic, with street protests in October leading to the resignation of Prime Minister Saad Hariri. On April 16, Prime Minister Hassan Diab said it had contacted the International Monetary Fund in hopes of receiving emergency financing

Dozens dead in Afrin bombing. At least 40 people were killed in the Syrian city of Afrin on the country’s Turkish border after a bomb detonated near an oil tanker on a busy street. On Twitter, Turkey’s defense ministry blamed the Kurdish People’s Protection Units (YPG) for the attack.

Writing from Afrin in 2018, after Turkish forces had seized the city from the YPG, Borzou Daragahi warned that Turkey may have overstepped by occupying the city. “Turkey, without quite realizing it, also made itself the de facto ruler of this part of Syria. The responsibility seems more of a quagmire than the Turkish government originally expected,” he wrote.

Kim Jong Un’s whereabouts. South Korean Unification Minister Kim Yeon Chul suggested that Kim Jong Un’s absence from public life could be the same as everyone else’s: He may be laying low to avoid the coronavirus. “I don’t think that’s particularly unusual given the current situation,” Kim said at a parliamentary hearing, adding that other North Korean state events had been cancelled due to coronavirus fears. A U.S. official, speaking anonymously to Reuters, said that U.S. assessments were largely in line with the South Korean minister’s comments.

On Tuesday, North Korea announced it was extending its coronavirus state of emergency until the end of the year, although the country has still not officially recorded any cases of COVID-19.

Oil at sea. As oil refiners rush to find places to store their product in the midst of a supply glut, the price of offshore options have soared. The Financial Times reports that the cost of hiring a Long Range 2 tanker, capable of holding 800,000 barrels, has doubled in the past week to a record $173,000 a day.

Odds and Ends 

The U.S. Department of Defense has declassified three videos showing “unexplained aerial phenomena” captured by U.S. military aircraft. Two videos had previously been leaked to the press and the third had been released by an organization co-founded by former Blink-182 guitarist Tom DeLonge. The videos show objects moving at high speed, executing unusual maneuvers for even modern aircraft.

In a statement, the Department of Defense gave their reasoning for the declassification, “DOD is releasing the videos in order to clear up any misconceptions by the public on whether or not the footage that has been circulating was real, or whether or not there is more to the videos. The aerial phenomena observed in the videos remain characterized as ‘unidentified,'” the statement read.

DeLonge, whose To the Stars Academy of Arts and Sciences helped bring the videos to light, welcomed the release and hinted at more to come. “Next, we plan on pursuing the technology, finding more answers and telling the stories,” he wrote on Twitter.

Former Nevada Sen. Harry Reid, who helped steer funds to UFO research in his time as Senate majority leader, suggested the Pentagon has even more information than it has let on. The release “only scratches the surface of research and materials available,” he said.

That’s it for today. 

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