Standard economic theory holds that if the Fed keeps monetary policy too easy for too long, inflation will result. But if easy money reduces productivity growth substantially, that would reduce the natural rate of interest, meaning that continued Fed targeting of low corporate borrowing rates might not cause inflation. The result would then be a new slow-growth equilibrium -- unproductive legacy companies kept afloat on cheap debt provided by a Fed more concerned with short-term politics than long-term productivity.

At this point, all of this is conjecture; until the pandemic is over, the Fed shouldn’t let up on its lending programs. But it would be useful to have a concrete plan for how to clear out the corporate deadwood once the coronavirus is no longer a threat.

This article was provided by Bloomberg News.

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