Order from us for quality, customized work in due time of your choice.
The COVID-19s impact on the economy is immeasurable, as firms and individuals across the world have to readjust to the new reality. This event has caused the U.S. to a 30 percent drop in its gross domestic product (GDP), which is similar to the Great Depression rate (Clarida et al., 2021). The policy tools that were used by the government in mitigating the crisis had to be reverted in order to restore the resources after a significant expenditure. This paper will discuss the U.S. Federal Reserves current initiative to relieve the COVID-19 policies that helped the country to survive the recession.
There were several monetary policy tools that were employed by the agency in order to prevent further damage to businesses in the United States, yet they had to be changed sharply in 2022. During the first year of the virus outbreak, $5.8 trillion was provided as financial support to the countrys economy (Clarida et al., 2021). Such an enormous investment was intended to prevent further spikes in prices and decrease peoples buying intentions.
First of all, interest rates were lowered by 1.5 percentage points to improve the situation in the labor market and reduce inflation (Clarida et al., 2021). This move positively impacted the prices of many goods and preserved peoples buying power. The goal of near-zero interest rates that were established during that time had to be changed. The current monetary policy of the Federal Reserve is to gradually increase the rate to 2.5 percent through several 0.75 percent increases (Milstein & Wessel, 2022). As the targets were achieved, the recent approach shows that price stability was preserved.
Repurchase agreements played a critical part in the toolkit used by the Federal Reserve during this crisis. Clarida et al. (2021) state that $500 billion and $200 billion were directed toward Treasury and mortgage-backed securities (MBS) (p. 6). Each month, a portion of said funds was expected to be spent. However, the current monetary policy regarding these supporting tools shows that only $20 billion is allocated for Treasuries, and $10 billion is spent on MBS (Milstein & Wessel, 2022). Therefore, the recent decrease is linked with a sustainable level of activities in critical markets.
Moreover, the guidance that was provided by the Federal Reserve was essential for keeping the markets running without any potential risks from unexpected government-induced changes. The Federal Open Market Committee (FOMC) shared the conditions for future changes in the current policies, such as the 2 percent inflation cap and maximum employment projections being reached (Clarida et al., 2021). A stream of updates on the topic further strengthened the effect of the policies mentioned above. These comments continue to be issued on a regular basis ( Coronavirus disease 2019, n.d.). The stability of forecasts remains a critical goal for the government.
In conclusion, the U.S. Federal Reserve played a vital part in mitigating the COVID-19 outbreaks impact on the countrys economy through a set of monetary policy tools, employing many of them simultaneously. In an attempt to prevent rising inflation, the agency used interest rates, programs to purchase Treasury securities and MBS, and repurchase agreements, and provided continuously updated guidance. However, these measures had to be adjusted over time, as the current situation shows that the Federal Reserve attempts to change the established policies gradually. Such an unprecedented situation required a drastic shift in the countrys fiscal management, and the government is now trying to readjust its strategy through the same tools.
References
Clarida, R. H., Duygan-Bump, B., & Scotti, C. (2021). The COVID-19 crisis and the Federal Reserves policy response. Finance and Economics Discussion Series, 2021(034), 1-23. Web.
Coronavirus disease 2019. (n.d.). Board of Governors of the Federal Reserve System. Web.
Milstein, E., & Wessel, D. (2022). What did the Fed do in response to the COVID-19 crisis? Brookings. Web.
Order from us for quality, customized work in due time of your choice.