"If the Federal Reserve does not decisively change the way it conducts monetary policy, it will probably not be capable of fighting recessions in the future as effectively as it fought them in the past."
That's the opening line of a new paper published Wednesday by former top Fed officials alarmed that the central bank may lack the traditional tools necessary to reverse the next recession.
Normally, that would mean slashing the Federal Funds Rate, making it cheaper to borrow money.
But economists are increasingly warning low rates now mean there won't be room to cut if a recession hits.
And the research paper comes just a day after Fed Chairman Jerome Powell surprised markets with a rate cut in response to rising fears about the coronavirus.
(SOUNDBITE) (English) FEDERAL RESERVE CHAIRMAN JEROME POWELL, SAYING (TUESDAY):
"Good morning, everyone. Earlier today, the Federal Open Market Committee announced a one-half percentage point reduction in the target range for the federal funds rate, bringing that range to 1 to 1-1/4 percent."
Donald Trump has urged Powell to go even further.
(SOUNDBITE) (English) U.S. PRESIDENT DONALD TRUMP, SAYING (TUESDAY):
"I would say that the fed funds rate, the rate, as you would call it, is too high. It should be eased down."
That leaves rates down near one percent. Where does that leave the Fed?
(SOUNDBITE) (English) BEN BERNANKE, U.S. FEDERAL RESERVE CHAIRMAN, SAYING (JANUARY 13, 2009):
"I believe that the Federal Reserve still has powerful tools at its disposal to fight the financial crisis and the economic downturn, even though the overnight federal funds rate cannot be reduced meaningfully further."
When the crisis hit at the end of 2007, rates were up above four percent, giving Fed Chair Ben Bernanke some room to maneuver.
(SOUNDBITE) (English) BEN BERNANKE, U.S. FEDERAL RESERVE CHAIRMAN, SAYING (FEBRUARY 24, 2009):
"There is a reasonable prospect that the current recession will end in 2009 and that 2010 will be a year of recovery."
By the end of 2009, rates were essentially zero. The unemployment rate peaked at more than ten percent. And the recovery proved stubbornly sluggish.
Unable to cut rates further, the Fed turned to unorthodox measures - ultimately buying $4 trillion in Treasury bonds - hoping that would force down bond yields and encourage more borrowing.
(SOUNDBITE) (English) FEDERAL RESERVE CHAIRMAN BEN BERNANKE SAYING (July 23, 2010):
"We have pushed monetary stimulation to the highest point in American history. We have zero interest rates, we have tripled our balance sheets, we've taken very strong steps."
With concerns about lagging growth in 2020, some analysts have projected that the Fed could cut interest rates back to zero by the end of this year.
The report published Wednesday said that if the Fed finds itself unable to cut rates in the next crisis, the central bank needs to tell markets now what it plans to do - how long it will leave rates at zero, and how many trillions in bonds it's ready to purchase.
The paper is the third high-level call this year for the Fed to give detailed guidance about how it might fight a recession.