The Fed Can Ease Policy, And It Won't Be Bad

2025-04-23 15:17:59 ET

Summary

• The Fed's ultra-soft monetary policy during crises in 2008 and COVID-19 prevented severe economic downturns by injecting liquidity into the economy.
• Post-2008, regulatory changes like Basel 3 limited credit growth, keeping inflation low despite an increased monetary base from quantitative easing.
• COVID-19 fiscal measures led to direct money flow into the real economy, causing inflation, unlike the 2008 crisis, where liquidity stayed in the financial system.
• The Fed has the resources to ease monetary policy without causing high inflation due to Basel 3, and easing could mitigate the negative impacts of duties on the economy.

We have already seen two major crises in the 21st century, the financial crisis in 2008 and the COVID-19 pandemic. Both of these crises have been fairly mild in terms of the economy when you compare them to what happened in the 20th century. And the key reason why that happened, I think, was a fundamental change in the way monetary policy was viewed....

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