What Should the Fed Do Now?

by Thomas L. Hogan
The American Institute for Economic Research

The coronavirus crisis and lockdown greatly disrupted economic activity in the United States. The Federal Reserve expected a deep recession and quick recovery. While those predictions proved correct, Fed Chair Jerome Powell remains pessimistic and has called on Congress for additional fiscal stimulus.

Is fiscal assistance necessary or could the Fed enhance the recovery with monetary policy?

Disruption to Production

Economic disruptions or “shocks” generally come in two types: Disruptions to productive capacity affect the supply of goods in the economy, while disruptions to spending affect the demand. The coronavirus outbreak and ensuing lockdown were primary supply-side shocks since people were unable to work and businesses unable to produce.

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