COVID-19

Fed takes unprecedented steps to prop up the economy

Amy Scott Mar 23, 2020
HTML EMBED:
COPY
The Federal Reserve's overall goal is to keep money flowing in the U.S. economy. Mark Makela/Getty Images
COVID-19

Fed takes unprecedented steps to prop up the economy

Amy Scott Mar 23, 2020
The Federal Reserve's overall goal is to keep money flowing in the U.S. economy. Mark Makela/Getty Images
HTML EMBED:
COPY

The Federal Reserve announced new measures Monday aimed at preventing a full-on economic depression. The central bank will now buy unlimited amounts of Treasury bonds and mortgage-backed securities.

The Fed is also setting up special programs to support business and consumer lending. The overall goal is to keep money flowing in the U.S. economy.

Traditionally, the Fed responds to crises by injecting money into the banking system. But this is a different kind of crisis, according to Jeffrey Bergstrand, finance professor at Notre Dame.

“What’s different this time is it’s not a financial crisis, but we want to prevent a financial crisis,” he said. “What this move basically does is provide a line of credit, and it extends that line of credit outside just the banking sector.”

For example, to local governments. The Fed will buy municipal bonds so those governments can keep funding their operations. It will buy corporate bonds and provide bridge loans to help large companies keep paying their bills and their workers. A “Main Street” program will provide loans to small and midsize businesses.

Tim Duy, professor of economic at the University of Oregon, said this will do a lot to help companies having trouble accessing credit right now.

“The Fed’s role is to find any and all mechanisms they can to support the flow of credit in the economy to large, medium and small firms,” Duy said. “But that doesn’t actually fix the underlying problem.”

The underlying problem is the global COVID-19 pandemic. After the pandemic subsides, the problem will be getting people to spend money again.

Duy said that’s where the fiscal stimulus Congress is working on — with cash payments and grants — comes in. Karen Petrou, managing partner at Federal Financial Analytics, said the Fed could also do more for regular folks.

“The Fed is working from the belief that if you save the really big companies and really big financial institutions, the money will trickle down to the rest of us,” Petrou said. “That hasn’t happened yet.”

She proposes short-term, low-cost loans to households and the very small businesses she says the Fed is overlooking.

COVID-19 Economy FAQs

What’s going on with extra COVID-19 unemployment benefits?

The latest: President Donald Trump signed an executive action directing $400 extra a week in unemployment benefits. But will that aid actually reach people? It’s still unclear. Trump directed federal agencies to send $300 dollars in weekly aid, taken from the federal disaster relief fund, and called on states to provide an additional $100. But states’ budgets are stretched thin as it is.

What’s the latest on evictions?

For millions of Americans, things are looking grim. Unemployment is high, and pandemic eviction moratoriums have expired in states across the country. And as many people already know, eviction is something that can haunt a person’s life for years. For instance, getting evicted can make it hard to rent again. And that can lead to spiraling poverty.

Which retailers are requiring that people wear masks when shopping? And how are they enforcing those rules?

Walmart, Target, Lowe’s, CVS, Home Depot, Costco — they all have policies that say shoppers are required to wear a mask. When an employee confronts a customer who refuses, the interaction can spin out of control, so many of these retailers are telling their workers to not enforce these mandates. But, just having them will actually get more people to wear masks.

You can find answers to more questions on unemployment benefits and COVID-19 here.

As a nonprofit news organization, our future depends on listeners like you who believe in the power of public service journalism.

Your investment in Marketplace helps us remain paywall-free and ensures everyone has access to trustworthy, unbiased news and information, regardless of their ability to pay.

Donate today — in any amount — to become a Marketplace Investor. Now more than ever, your commitment makes a difference.