Please Respond By Feb 15th At 11:59 PM Please Review The ✓ Solved

Please respond by Feb 15th at 11:59 pm. Please review the

Please review the following two articles and answer the questions:

  1. Fed Maintains Stimulus Commitment as Economic Outlook Dims by: Nick Timiraos July 29.
  2. The Covid Crisis Will End. The Recovery May Take a Lot Longer by: Leslie P. Norton January 10, 2021.

Click the following link to view the full articles on WSJ.com:

  1. Fed Maintains Stimulus Commitment as Economic Outlook Dims
  2. The Covid Crisis Will End. The Recovery May Take a Lot Longer

QUESTIONS:

  1. How has the Fed sought to support the economy since the outbreak of Covid-19?
  2. What are the three related deliberations that the Fed is currently undertaking?
  3. How is prosperity created? What is Carmen Reinhart’s opinion on prosperity?
  4. Why does Reinhart say, “Don’t confuse rebound with recovery”? Why is this relevant today and where is it most relevant?

Paper For Above Instructions

The outbreak of Covid-19 created significant disruptions to economies worldwide, prompting various measures to support the economy. The Federal Reserve, commonly referred to as the Fed, has implemented a series of strategies to mitigate the adverse economic impacts of the pandemic. These initiatives reflect a combination of monetary policies and economic stimulus aimed at promoting recovery and stability.

Since the onset of the Covid-19 pandemic, the Fed has sought to support the economy through several mechanisms. First and foremost, the Fed lowered interest rates to near-zero levels, thereby reducing borrowing costs and encouraging investment and consumption (Timiraos, 2020). The intention behind these low rates is to stimulate economic activity by making loans and credit more accessible to businesses and consumers alike. Lower interest rates tend to incentivize spending, thereby fostering economic growth during uncertain times.

Secondly, the Fed engaged in asset purchases, commonly referred to as quantitative easing (QE). This process entails the Fed buying government securities and other financial assets to inject liquidity into the financial system, thereby supporting market functioning and lowering long-term interest rates (Norton, 2021). By increasing the supply of money, the Fed aims to encourage lending and investment, which in turn supports economic recovery.

Additionally, the Fed established several emergency lending facilities aimed at supporting various sectors of the economy, including corporate, municipal, and small business sectors (Timiraos, 2020). These initiatives are intended to ensure that credit remains available and that the flow of capital to businesses is uninterrupted. This comprehensive approach reflects the Fed’s commitment to stabilizing the economy amidst unprecedented challenges.

In addressing the second question concerning the deliberations currently undertaken by the Fed, it is essential to recognize the complexity and interrelated nature of these discussions. The three related deliberations involve the strategy around the tapering of asset purchases, considerations for future interest rate adjustments, and assessments of inflationary pressures. The Fed must carefully navigate these issues to balance economic growth against potential inflation that may arise from prolonged stimulus measures (Timiraos, 2020). The decision on when to taper asset purchases—essentially slowing down the pace of buying assets—requires a nuanced understanding of the economic recovery's speed and sustainability.

Moreover, when addressing interest rate changes, the Fed must consider the potential impact on economic growth and employment. A premature increase in rates could stifle the recovery, while delayed adjustments may lead to a significant overheating of the economy (Norton, 2021). As Federal Reserve Chairman Jerome Powell has noted, the Fed will take a careful approach in deciding when to adjust interest rates, seeking to strike a balance between fostering growth and managing inflationary risks.

Turning to the notion of prosperity, it is prevalent to discuss how it is created and the perspectives of economists like Carmen Reinhart. Prosperity is typically seen as an outcome of sustained economic growth, which in turn is driven by various factors, including innovation, investment, and sound fiscal policies. Reinhart, a respected economist, highlights that historical contexts play a vital role in understanding prosperity. She argues that sustainable growth is dependent on historical lessons learned from financial crises and economic downturns (Norton, 2021).

Furthermore, Reinhart’s assertion that “Don’t confuse rebound with recovery” holds substantial relevance in the current economic climate. Following a significant downturn, such as that caused by the pandemic, economies often experience a rebound as businesses reopen and consumer demand resumes. However, a rebound does not necessarily equate to a full recovery, as structural issues may linger that prevent a return to pre-crisis economic health (Norton, 2021). This distinction is critical, particularly today, as policymakers must recognize that immediate growth following a recession does not guarantee long-term economic stability or prosperity.

This concept of distinguishing between rebound and recovery is most relevant in sectors heavily impacted by the pandemic. For instance, industries such as travel and hospitality have seen temporary surges in activity but need further safeguards and reforms to ensure long-term recovery and resilience against future shocks (Timiraos, 2020). Therefore, the discussion surrounding economic policy must remain nuanced, allowing for a comprehensive understanding of both immediate recovery tactics and long-term structural changes necessary for sustainable growth.

In conclusion, the Federal Reserve has employed a multifaceted strategy to support the economy since the outbreak of Covid-19. Through interest rate reductions, asset purchases, and emergency lending facilities, the Fed aims to foster economic recovery amidst significant challenges. The deliberations regarding tapering, interest rate adjustments, and inflation are critical as the Fed navigates the path toward sustainable growth. Finally, the perspectives of economists like Carmen Reinhart serve to underscore the necessity of differentiating between rebound and recovery, highlighting the complexities of achieving lasting economic prosperity in the wake of unprecedented global turmoil.

References

  • Timiraos, N. (2020). Fed Maintains Stimulus Commitment as Economic Outlook Dims. Wall Street Journal.
  • Norton, L. P. (2021). The Covid Crisis Will End. The Recovery May Take a Lot Longer. Wall Street Journal.
  • Blinder, A. S. (2020). The Federal Reserve’s Response to the COVID-19 Pandemic. Brookings Institution.
  • Powell, J. (2021). Monetary Policy and the Economy. Federal Reserve Bank Speech.
  • Reinhart, C. M. (2015). Financial Crises: Lessons from the Past. Financial Stability Review.
  • Bernanke, B. S. (2020). The Federal Reserve and the Recession. Brookings Institution Press.
  • Yellen, J. L. (2021). Economic Recovery in the Wake of a Pandemic. National Bureau of Economic Research.
  • Cecchetti, S. G., & Schoenholtz, K. L. (2019). Money, Banking, and Financial Markets. McGraw-Hill.
  • Furman, J. (2020). The Case for a Robust Recovery Strategy. Peterson Institute for International Economics.
  • Kroszner, R. S. (2021). The Role of Central Banks in Economic Recovery. Journal of Economic Perspectives.

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