The coronavirus pandemic has brought disastrous effects upon America’s economic health and stability. It has prompted the necessity of quarantines and shutdowns of businesses on a national scale, resulting in unemployment figures not seen since the Great Depression and bankruptcy of many retail firms.
In the face of such a crisis, the U.S. Federal Reserve has taken bold steps in addressing the economic uncertainty and to limit the economic damage. They have lowered the federal fund rate down to a range of 0 to .25%, to lower the cost of borrowing money and therefore stimulating economic growth.
In addition, they have begun buying massive amounts of treasury and mortgage-backed securities in order to inject money into the market and bolster economic activity. In terms of lending, the fed has supported loans with low or deferred interest payments for banks, large businesses, and small businesses.
These actions have helped to mitigate some damage and is the likely reason why despite GDP declines and staggering unemployment, many investors are optimistic and see a path to recovery, resulting in stock market surges in spite of poor economic activity. Understanding the moves the fed is making in response to the crisis can offer us valuable information on the impact the institution can have on markets and predict how their actions will impact economic behavior.
Cheng, J., Skidmore, D., & Wessel, D. (2020, April 30). What's the Fed doing in response to the COVID-19 crisis? What more could it do? Retrieved May 19, 2020, from https://www.brookings.edu/research/fed-response-to-covid19/
Author: Andrew Fu