COVID-19 continues to work its way through the United States and the economic ramifications have been disastrous.
As the virus continues to spread, businesses around the country are being forced to shut down to mitigate health and safety risks. Moreover, supply chains have been greatly impacted largely due to the effects of the virus on China’s manufacturing sector.
Further, businesses that are able to remain open continue to struggle due to significantly reduced consumer spending as would-be customers self-isolate and remain at home.
In response, the Federal Reserve is enacting a number of programs that, together, will be significantly more aggressive than its efforts to combat the ‘08 financial crisis. This comes after the Fed injected $1.5 trillion into the markets recently.
According to the head of global policy and central bank strategy for Evercore ISI, Krishna Guha, the Fed’s balance sheet could approach $10 trillion by the end of this ordeal.
Guha stated, “As things stand the Fed is racing very quickly towards a $7 trillion balance sheet and our best guesstimate is that it might peak in the very broad vicinity of $9 or $10 trillion,” he continued, “This is monetized credit policy and fiscal-monetary support on a grand scale.”
Federal Reserve Moving Quickly
Recognizing the urgency of the situation, the Fed plans to act fast to try to ease the economic impact of the coronavirus pandemic.
Monday, the Fed announced that it plans to purchase Treasury’s and mortgage-backed securities as part of its efforts to stabilize the markets. This includes $625 billion in spending one week alone.
The Fed is moving quickly to ease economic strains. In addition to the previously mentioned programs, the Fed is adding commercial mortgage-backed securities to its planned purchases, purchasing corporate debt, and more.
Additional Aid Needed
Still, many are depending on Congress to provide additional economic stimulus. Guha said, “If Congress comes through – which is still our baseline – the combined policy actions should substantially mitigate the risk that the virus shock is amplified by an economy-wide credit shock.” However, he made sure to note that it would not “have any great bearing on how long the virus shuts down the economy.”
President Trump just signed the $2 trillion fiscal stimulus package into law, which provides direct aid to average Americans, small businesses, and more. Each American earning under $75,000 annually will be entitled to a $1,200 stimulus check from the government. Children will be entitled to $500, and the stimulus check diminishes as a person’s annual adjusted gross income comes in above $75,000.
While the Fed can do a lot to help stabilize the markets, the federal government’s $2 trillion package will help to supplement these efforts by providing aid to the businesses and individuals impacted by these unprecedented events. However, the Fed and federal government cannot bank roll losses to the economy from a long-term coronavirus shutdown.
Article By: Connor Beam