Future of the economy still uncertain amid coronavirus, Ex-Feds official

Future of the economy still uncertain amid coronavirus, Ex-Feds official

Recently, the U.S. Federal Reserve has taken significant steps to comfort the economy as a whole amid the fears of an economic recession due to the coronavirus pandemic. A former Fed official mentioned his opinion on the efficiency of the recent acts undertaken by the Feds.  

He said that the actions taken are well deserved to be applauded, but the U.S. economy is not out of the woods just yet, and the future may still be doubtful.

“I think recessionary conditions are definitely a risk and we’re dealing with so much uncertainty now on how this virus situation unfolds and what the economic impact turns out to be, nobody really knows,” Dennis Lockhart told CNBC on Monday.

“I think we should applaud the Fed for, in a way, getting as much ahead of the curve as they can,” he added.

Image source: cnbc.com

On Sunday, the feds announced that apart from $1.5 trillion infusions through repo operations, they plan to keep the feds funds rate marginally lower to support the U.S. economy further. The target rate would be between 0%-.25%, which is a percentage below. They also launched a comprehensive program to buy $700 billion worth of Treasuries and MBS.

It must be noted that this rate cut comes less than a couple weeks after the feds cut its funds rate to 1%-1.25%. Not just the U.S. but the apex banks around the world are taking such measures to tackle the major economic impact that the coronavirus has had on the world economy.

Coronavirus has been rapidly increasing; it has affected more than 150,000 people over the globe and killed at least 5,746 people as per the World Health Organization stats.

As per Lockhart, the Fed has now “spent all their bullets from an interest-rate cut point of view.” It remains to be seen whether that’ll leave the central bank with fewer options to support the U.S. economy in the future, he added.

Goldman Sachs has also downgraded the forecast for the U.S. Economy. The key analysts foresee the U.S. growth in the first quarter as nil. As per other analysts, it is difficult to ascertain the efficiency of the U.S. Feds moves in preventing the U.S. Economy from going into recession.

According to an ex-Fed governor (2006-09), Randy Kroszner, Feds still have more ammunition up their sleeves to tackle any pressure, other than by cutting out the interest rates. Fiscal and regulatory policies are needed to come into play to overcome this situation.

“The Fed can do a lot to provide liquidity to do the markets, but it can’t solve a disruption in supply chain, it can’t cure a virus,” he told CNBC on Monday. 

He added that it is essential on both the Fed and State levels to focus on providing Health infrastructure in the U.S. to deal with the situation in a diligent manner.

Ayushman Rajawat