What Else Can the Fed Do? Better Sit Down for This…

by Rick Ackerman
RickAckerman.com

With trillions of stimulus dollars raining down on America already, how much more of them does the economy need? Mnuchin and Powell differ on this, which, fortunately for taxpayers, is an argument playing out in Congress that has put any further sums on hold. The Fed chief thinks a recovery will be at risk if additional funds are not forthcoming. Treasury’s Mnuchin is on record with a prediction that U.S. growth will bounce back sharply in 2021 and says there has been stimulus enough already. If Powell’s argument prevails, what kinds of things could the Fed do to open the money spigot even wider?

Wonder no more. Here’s a prospectus from one Abhishek Shrma, writing in the Financial Times about the threat of deflation from falling commodity prices and the steep plunge that has occurred in consumer spending. Fortunately, he notes, “the Fed and the Treasury are far from being ‘out of ammunition’. They should take the following steps. First, the interest rate that the Fed pays on bank reserves should be reduced to zero (from 0.1 per cent now). Then payroll taxes should be eliminated for the rest of the year (and all those already paid this year by workers and employers refunded) until the deflation abates. This is much more efficient than more federal spending.

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