The Federal Reserve’s Plans to Save the Economy During the Coronavirus

The Federal Reserve’s Plans to Save the Economy During the Coronavirus

The coronavirus outbreak in the US has led millions of Americans to become unemployed, furloughed, or working with reduced hours. The pandemic has affected nearly every industry, and raise doubts if some, like airlines, can make it. 

To ease the pains of another economic recession, the Federal Reserve is doing its best to “keep financial markets functioning and credit available to households and firms,” says former Fed Chair Janet Yellen. 

The Fed has been open about its intent to purchase whatever is necessary to prevent credit markets from grinding to a halt, beginning with buying over $1.2 trillion in Treasurys and mortgage-backed securities mid-March. 

The Fed is partnering with the Treasury Department to break into non-traditional exchanges, including loaning assets to large enterprises and creating a plan to help fund small companies.

Greg McBride is the chief financial analyst for Bankrate.com. In an interview with NPR, McBride said, “The Federal Reserve is really throwing out all the stops in an effort to contain a health crisis from becoming an economic or financial crisis. Issue No. 1 for the Fed is to get the plumbing of financial markets working properly again.”

Challenges Facing the Central Bank

To a degree, the Fed’s decisions have helped keep financial channels from drying up, but credit remains harder to acquire pre-pandemic. Currently, the main obstacle facing the Fed is whether it can support businesses that no longer have any customers.

The recent CARE bill, which aims to manage the ripple effects of the pandemic, consists of $2 trillion for relief. $454 billion of the relief bill will go to central bank loans, which should put $4 trillion back into the economy. 

While the Fed has limited itself by lowering interest rates to almost zero, Jerome Powell affirms that the central bank has more strategies planned. During an interview on NPC’s Today show, Powell said, “When it comes to this lending, we’re not going to run out of ammunition. Where credit is not flowing, we have the ability in this unique circumstance to step in and provide these loans.”

With a looming recession and countless Americans out of work, that support will be imperative. In the next three months, Golden Sachs estimates that the US economy will decline 34% annually because of conscious attempts to curb the extent of the coronavirus.

In a situation where workers must stay home and for businesses to temporarily shut their doors, the central bank hopes that pumping funds into the market will keep the economy going until things subside. 

The Fed has been much more proactive in its endeavors during this economic downturn than in the 2008 recession. Experts note that ongoing actions are ones used by former chair Ben Bernanke 12 years ago, although there are some key differences. 

The current strategy would drive the Fed into an unprecedented arena by offering cash to midsize companies in an attempt to keep them running throughout the outbreak. Although many are unsure about the future of the market, there are hopes that the central bank’s plan will mitigate the economic effects in a post-pandemic America.

Source

  • Horsley, Scott. “Fed Goes All Out To Keep Economy Alive During Coronavirus Shutdown.” NPR, NPR, 6 Apr. 2020, www.npr.org/2020/04/06/826894304/fed-goes-all-out-to-keep-economy-alive-during-coronavirus-shutdown.

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Madison Powers
Madison Powers