The stresses that emerge as a result of the coronavirus are likely to be very different from those that occurred during the financial crisis. This time we are likely to see considerable stress on small businesses that encounter cash-flow problems and on households, especially if unemployment spikes.
These types of problems probably are better addressed through fiscal policy than monetary policy. Payroll tax cuts, sick-leave pay, extended unemployment benefits, and block grants to state and local governments to forestall layoffs should all be considered.
The Fed has a few good hammers, but not every problem is a nail. The coronavirus is likely to lead to a host of challenges to which monetary policy is not well suited. The sooner this is widely recognized, the faster more appropriate measures can be implemented by the administration and Congress.
This article was provided by Bloomberg News.