Charting New Territory in Monetary Policy, Unemployment Aid, and Australia


  • The Fed Opens the Floodgates
  • Supporting the Workforce Though the Crisis
  • Australia’s Record Expansion Is Ending

There aren’t many diversions available in this time of the Coronavirus. Theaters are closed, sporting events have been cancelled, and “dinner out” is eating take-away food in the parking lot of your favorite restaurant. In my house, we’re tired of crossword puzzles, Netflix-binging, and board games.

So, my wife has decided that tackling the home-repair backlog would be an ideal way to fill the few hours each day that I am not working or sleeping. First on the list: Installing a new kitchen faucet. This is not an easy thing to do: the fittings are hidden behind a rigid superstructure that requires considerable effort to work around. There goes my back…again.

The sink is so difficult to dislodge that the logic of the phrase “throwing everything but the kitchen sink” seems particularly clear. But I suspect the plumbers at the U.S. Federal Reserve are checking the fittings so they can add the sink to the other appliances they have used to address the advancing recession.

After reducing interest rates to zero in 2008, the Fed had to rely upon “unconventional” monetary policy. New to the toolkit was “quantitative easing” (QE), under which they began to purchase Treasurys and mortgage-backed securities. This provided credit directly to the U.S. government (which was spending additional money to fight the recession) and to mortgage markets that had been impaired by the housing crash. The Fed took very little credit risk, and while it did provide some specific support to the real estate sector, it generally avoided accusations of favoring some industries over others.

Weekly Economic Commentary - 04/17/20 - Chart 1

The Fed also initiated a range of programs to address problems in specific segments of the financial markets, and offered direct aid to a handful of institutions whose failure could have caused extensive damage to the financial system. Those efforts have generally been hailed as a success; they generated immense returns for American taxpayers and paved the way for an eleven-year economic expansion.

Yet there are critics of the Fed’s work during the global financial crisis. Legislation enacted in the years that followed made it more difficult for the Fed to act unilaterally. As a result, the unfolding of the current crisis spurred concerns over the Fed’s ability to respond. In retrospect, those fears look incredibly foolish; American monetary policy has moved with speed and scale that make the actions of 2008 pale in comparison.

“The Fed has taken policy far beyond 2008 standards.”

Today’s policy makers have been able leverage the pioneering actions of eleven years ago. They brought interest rates back to zero in two large cuts executed in less than two weeks, both without a formal meeting. They resumed quantitative easing without the program limits that had been used in 2008. (Some are terming the current effort “QE forever.”) And they resurrected programs that were successful back then, like the Commercial Paper Funding Facility (CPFF) and the Term Asset-Backed Securities Loan Facility (TALF).

Weekly Economic Commentary - 04/17/20 - Chart 2