Fiscal and Monetary Policy During the Covid-19 Pandemic

By Umair Ahmed COVID-19 has had a tremendous impact on the U.S economy. From 32% of households experiencing food insecurity to unemployment rates spiking up to 10%, the U.S economy’s recession was felt by millions of Americans. The Federal Reserve and the US Government have used several monetary policy and fiscal policy tools in order to keep the U.S economy afloat and attempt to bring the economy back to full employment. The Federal Reserve controls the monetary policy of the United States. To stabilize the economy and lower unemployment, the Federal Reserve decreased the interest rate they lend money to banks from 2.25% to 0.25% and the interest rate banks loan to each other from 1.58% to 0.05%. By decreasing the interest rate, commercial banks borrow greater sums of money. By utilizing these monetary policy tools to inject more money into the economy, the Federal Reserve increased the money supply which caused greater investment spending. An increase in investment spending stimulates a multiplier effect of consumer spending. This results in increased job opportunities as demand rises. The U.S government controls the fiscal policy of the United States. When the United States economy experienced high unemployment rates, the United States Government implemented expansionary fiscal policy to help stabilize the economy. The United States Government passed 3 multi-trillion dollar stimulus packages in response to Covid 19’s impact on the economy. Mr. Golden, an Economics teacher at Northside College Prep, has a positive view of the U.S Government’s fiscal policy. “My opinion on the initial COVID-19 package was that it offered fairly robust aid to businesses and unemployment and helped individuals with the eviction moratorium, direct payments, and stalling student loan interest.” Mohammad, an independent contractor who was laid off due to COVID-19, also has a positive view on the U.S government’s fiscal policy. “The U.S Stimulus packages have assisted me tremendously. After being laid off due to the pandemic, I had to rely on unemployment benefits and stimulus checks in order to put food on the table for my family.”

Fiscal and Monetary Policy During the Covid-19 Pandemic