Emergency sirens are blaring across the global economy. The coronavirus crisis that seemed like a substantial risk a week ago is now a devastating threat to the U.S. economy. America in a matter of days witnessed key parts of its transportation, hospitality and entertainment sectors (among others) rush into stunning shutdowns from coast to coast. Countless businesses that cannot go remote are going dark entirely, for at least weeks and maybe months. Layoffs are under way, financial markets are convulsing and an economic contraction is glaringly obvious without a single piece of official data.
The choice now for the Trump administration and Congress is only the size of the bazooka to pull out. The Federal Reserve became the first of the firefighters to arrive on the scene with a huge show of force— back to zero percent rates and huge asset purchases, responding to clear indications that key financial markets are not working properly — in a Sunday night emergency action that felt very 2008. Fed Chair Jerome Powell was clear about the central bank’s willingness to step up, and about the fact that it can’t resolve a pandemic or manufacture fiscal powers. But he hinted at other emergency-lending tricks, such as the Fed’s 13(3) ability to lend to non-financial companies, that could come to the rescue with far less controversy than a dozen years ago.
Trillion-dollar packages were being floated last week by President Donald Trump (partly through a payroll tax cut that few lawmakers want). The scale of the current crisis suggests we’re poised to see a response surpassing the size of the 2009 stimulus. Congress is set to pass its second major coronavirus-related response in the coming days. But that’s not close to the end. Treasury Secretary Steven Mnuchin indicated over the weekend “we’re in the early innings” of the administration’s response with “100 different things that we’re looking at.” He and other senior administration officials were meeting throughout the weekend to prepare the next round of proposals, which we should hear about soon. Continue reading.