The Chicago Fed's National Activity Index drops into negative territory in March

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The Chicago Fed National Activity Index fell to negative 4.19 in March from a revised positive 0.06 in February, originally reported as positive 0.16, the Federal Reserve Bank of Chicago said Monday.

Amid the COVID-19 pandemic, the production and employment indicators led the CFNAI’s decline into negative territory.

The index’s three-month moving average, CFNAI-MA3, decreased to negative 1.47 in March from negative 0.20 in February.

The Chicago Fed said that historically after a period of economic expansion, there has been an increasing likelihood of a recession if the CFNAI-MA3 falls below negative 0.70.

The CFNAI Diffusion Index, which is also a three-month moving average, fell to negative 0.32 in March from negative 0.21 in February.

All three indexes were created using data available as of April 16.

Federal Reserve officials have been detailing the ways the central bank has been fighting the effects of the coronavirus pandemic.

Speaking remotely to the Money Marketeers of New York University last Friday, the Federal Reserve Bank of New York’s executive vice president Daleep Singh talked about the importance of the newly formed Municipal Liquidity Facility.

The MLF was designed to help states, cities and counties with funding to provide essential public services.

“Due to the virus outbreak, the municipal securities market has recently been under considerable strain as investors have become reluctant to purchase municipal securities. As a result, interest rates on municipal securities have increased significantly,” Singh said. “At the same time, states, cities, and counties are facing severe liquidity constraints resulting from the increase in state and local government expenditures related to the COVID-19 pandemic and the decrease and delay of certain tax revenue.”

By ensuring the smooth functioning of the municipal market, he said, the Fed was providing credit to support families, businesses and jobs in communities across the economy.

“The immediate purpose of the Municipal Liquidity Facility is to enhance the liquidity of the municipal securities market by increasing the availability of funding to eligible states, cities and counties through tax anticipation notes, tax and revenue anticipation notes, bond anticipation notes, and other similar short-term notes from eligible issuers,” Singh said.

“The eligible issuer’s proceeds from its notes sales can in turn be used to support its political subdivisions and instrumentalities, among other uses. This facility will provide a form of bridge financing to eligible issuers, and by addressing the cash management needs of eligible issuers, the facility will also encourage investors to once again engage in the municipal securities market.”

He added that the Fed will be transparent in its actions.

“We know the ultimate definition of success is accomplishing what we set out to do in support of the American economy. In pursuing this goal, we’ve been entrusted with a great responsibility to deploy large sums of public resources, and we have an obligation to the public to be accountable for all our actions,” Singh said.

Separately, New York Fed President John Williams said it was time to get aggressive in fighting the pandemic.

“This crisis requires innovative thinking and bold action. My colleagues and I are dedicated to doing our utmost to lessen the impact of the crisis on families and businesses in our communities, and to restore our nation’s economic prosperity as quickly as possible,” he said, speaking remotely Thursday to the Economic Club of New York.

He said the pandemic has created circumstances most people had never experienced and noted there was hardly a community in the world that remained unaffected.

“Although many people have drawn comparisons with the financial crisis of 2008, the current turmoil is fundamentally different from recessions of the past,” he said. “The challenges before us do not stem from vulnerabilities at banks or the bursting of a bubble — I can only liken them to a natural disaster of global proportions.”

While unprecedented numbers of people have filed for unemployment insurance in the past several weeks, Williams said, “we know that more economic pain is still to come. The reality is that the full scale of the economic consequences is still unknown.”

Given the cause, monetary policy action isn't sufficient in this crisis, he said.

“We cannot act alone; fiscal policy is also playing a critically important role. In particular, it can do what monetary policy cannot: provide for the public health response and transfer income to those most affected by the outbreak,” he said. “Fiscal policy is also a vital partner in the delivery of our own programs, supplying the financial support necessary for the extraordinary scale of the credit facilities we’re operating.”

In Washington, sources told CNBC that there is optimism that congressional legislation on a package of aid to fight the pandemic could be passed in the next few days.

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Coronavirus Economic indicators Federal Reserve Bank of Chicago Federal Reserve Bank of New York John Williams
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