As state and federal governments weigh the most effective responses to COVID-19 and the economic disruption resulting from efforts to flatten the contagion curve, it is clearly time for some new approaches.

The old playbook of the Federal Reserve adding liquidity is unlikely to have an immediate impact. As was written in Astor’s Outlook 2020:

A continuation of the low interest rate, high liquidity environment that we’ve seen in the U.S. will likely not have the same desired impact in the future. We may have gotten all we can from lower rates. In fact, it’s possible the additional liquidity and lower rates acted like an antibiotic to curing the economy at the time, and hence the stock market. So, is it possible that now the economy has built up an immunity to lower rates? We will see, I guess. That said, once the economy is back in function and COVID-19 has been contained, the Feds action should stimulate demand provided that supply has not been disrupted permanently.


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