![]() ![]() In the New York, New Jersey, and Connecticut area (an epicenter of the outbreak), about 40 percent of service firms and 30 percent of manufacturing firms reduced payroll staff.Īs revenues plummeted and firms ran low on cash, their borrowing needs increased. Alongside the loss of jobs, consumer confidence plunged and the Weekly Economic Index fell to a level not seen since the 2008 financial crisis. In the United States, in particular, initial claims, which reflect the number of workers filing for unemployment insurance for the first time, totaled an unprecedented 16.8 million during the three weeks ending on April 4. ![]() Many individuals lost their jobs, were forced to reduce spending, and faced financial hardship. Firms in the transportation, retail, and services sectors were especially affected, but productivity suffered more generally as employees got sick and supply chains were disrupted. Social distancing rules imposed restrictions on work and movements deemed nonessential, and advisories and restrictions limited travel between countries and, sometimes, within countries.Ĭonsequent to these actions, activities and services requiring face-to-face transactions and large congregations of people declined significantly. The coronavirus’s high transmissibility and rapid spread spurred public health experts to advocate for increasingly aggressive countermeasures, which governments then implemented. In the United States, the first case was reported on January 21, with cases rising rapidly thereafter and tallying the highest confirmed case count of any country as of March 26. A sharp increase in global confirmed cases was noted in March, with the WHO declaring COVID-19 a global pandemic on March 11 (see the chart below which highlights the exponential growth in confirmed cases). Cases increased in China and then began to spread internationally in January and February. The outbreak was later attributed to a novel coronavirus (COVID-19 is an acronym for the disease caused by this virus). On December 31, 2019, the World Health Organization (WHO) was informed of an outbreak of a pneumonia of unknown cause in Wuhan, China. In this post, we briefly review the developments motivating these actions, summarize what the Fed has done and why, and compare the Fed’s response with its response to the 2007-09 financial crisis. These measures include cutting the Fed’s policy rate to the zero lower bound, purchasing Treasury and mortgage-backed securities (MBS) to promote market functioning, and establishing several liquidity and credit facilities. The Federal Reserve has taken unprecedented actions to mitigate the effects of the COVID-19 pandemic on U.S. households and businesses. Michael Fleming, Asani Sarkar, and Peter Van Tassel ![]()
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