In: Economics
As the U.S. economy underwent a historic shutdown due to the pandemic, the Federal Reserve was uncharacteristically bold and swift in pushing out initiatives, facilities, and decisions that have monumental and unusual impacts on the economy, many of these actions go beyond the usual mandate of monetary policy. Please do a little research (including going to the Fed's website) and itemize these actions, along with a brief statement of what each of them does; then add a statement about what you think could be any downside of these actions.
Note: Answer has to be in 250-300 words. please do not copy and paste. try to write in your own words.
It could get a bit lengthy but it is important to understanding detail what steps have been taken by the Fed to combat the slowdown in the economy. You can pick and chose steps you feel are important to create the 250-300 words answer. The answer seems to be intimidating but believe me this is the best indepth explanation you can get..
Below is the detailed account with dates about what actions have been taken by the Fed on the monetary as well as fiscal side:
The U.S. Federal Reserve has taken a number of significant measures to provide monetary stimulus:
On March 3, 2020, it made an unscheduled cut to the fed funds rate. It slashed rates by 0.5%, double the amount of its recent moves, and the largest cut since the 2008 financial crisis.
On March 12, the Fed massively expanded reverse repo operations, adding $1.5 trillion of liquidity to the banking system. This means that the Fed extended the amount of short term loans to banks to keep money markets (markets for very short term loans) stable and allow banks to have more cash on hand.
On March 15,
On March 16, the Federal Reserve increased reverse repo operations by another $500 billion.
On March 17,
On March 18, the Federal Reserve announced the Money Market Mutual Fund Liquidity Facility (MMLF). This is a new program, to lend money to banks so they can purchase assets from money market funds, like with the CPFF, the Treasury is offering up to $10 billion to cover loan losses the Fed incurs from the program. In addition, lending under the program will not effect bank capital requirements. The program is scheduled to run until the end of September.1 This is similar to the AMLF program launched in 2008 after the collapse of Lehman Brothers caused a major money market fund to fail.
On March 23, the Federal Reserve released another raft of monetary stimulus including:
On March 31st, amid other technical changes, the Federal Reserve lowered capital requirements for banks
On April 6, the Fed announced that it will establish another lending facility to help provide financing to expand the Small Business Administration's loan program under the stimulus bill.
On April 9, it provided details for its loan program and announced a slew of others which it says will extend up to $2.3 trillion in loans. The programs include the following:
Above are the steps taken by the Fwd in the entire month of March to deal with the COVID19 situation. But we should remember that this crisis is not a financial one in act the financial mess is an effect of a global health pandemic. The fed alone cannot deal with the situation. the fed can utmost is to stimulate the markets to generate demand and supply. However as we know that most of the businesses have been closed and the one's open are not working at 100% capacity. The Oil has fallen to $20/barrel is a good indicator. The amount of trade happening is very limited. In this kind of a scenario it is very difficult to bring the economy back on track. As the demand and supply has dried up the economic activity has come to a grinding halt. For eg we cannot go to a restaurant to have a meal, we cannot go for a movie or cannot go to a amusement park, the hotels are vacant and the tourists are nowhere to be seen. There are many more things we cannot do and the businesses which support them have collapsed. The only way economic activity can be revived is by easing some of the restrictions to allow some economic activity. as we see the unemployment jobless claims have gone up to historic highs and the govt will not be sustain this for long as all its revenue sources have dried up including taxes. Hence I think even after these major steps taken by the Fed it is for the Govt to fight this crisis and provide the economy with supply chain relief and ease the restrictions when the situation improves.