Federal Reserve intervention needs to be cautious when addressing Covid-19 economic downturn

2 June 2020 (Last Updated June 2nd, 2020 07:39)

2 June

The economic downturn caused by the Covid-19 pandemic has led experts and politicians to call for policy actions to be taken by the Federal Reserve. Any policy actions, however, may not result in the necessary potential benefits.

Mohamed A. El-Erian, chief economic adviser at Allianz, shared an article on how the Federal Reserve should resist pressure to take additional policy actions such as negative interest rates, asset-purchase programmes and more aggressive forward guidance.

However, such policies may lead to investment in risky assets and push their prices even higher.

The Federal Reserve may distort the market by interfering too much.

The markets in turn may not send accurate price signals and fail to direct and mobilise capital, the article adds.

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