Fed takes unprecedented steps to prop up the economy
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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
Millions of Americans are unemployed, but businesses say they are having trouble hiring. Why?
This economic crisis is unusual compared to traditional recessions, according to Daniel Zhao, senior economist with Glassdoor. “Many workers are still sitting out of the labor force because of health concerns or child care needs, and that makes it tough to find workers regardless of what you’re doing with wages or benefits,” Zhao said. “An extra dollar an hour isn’t going to make a cashier with preexisting conditions feel that it’s safe to return to work.” This can be seen in the restaurant industry: Some workers have quit or are reluctant to apply because of COVID-19 concerns, low pay, meager benefits and the stress that comes with a fast-paced, demanding job. Restaurants have been willing to offer signing bonuses and temporary wage increases. One McDonald’s is even paying people $50 just to interview.
Could waiving patents increase the global supply of COVID-19 vaccines?
India and South Africa have introduced a proposal to temporarily suspend patents on COVID-19 vaccines. Backers of the plan say it would increase the supply of vaccines around the world by allowing more countries to produce them. Skeptics say it’s not that simple. There’s now enough supply in the U.S that any adult who wants a shot should be able to get one soon. That reality is years away for most other countries. More than 100 countries have backed the proposal to temporarily waive COVID-19 vaccine patents. The U.S isn’t one of them, but the White House has said it’s considering the idea.
Can businesses deny you entry if you don’t have a vaccine passport?
As more Americans get vaccinated against COVID-19 and the economy begins reopening, some businesses are requiring proof of vaccination to enter their premises. The concept of a vaccine passport has raised ethical questions about data privacy and potential discrimination against the unvaccinated. However, legal experts say businesses have the right to deny entrance to those who can’t show proof.
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