What Tools Does the U.S. Have to Combat the Next Recession? (VIDEO)
Harvard University and George Washington University and The Hamilton Project, Brookings Institution
Excerpt from webinar with Karen Dynan (Harvard University), Jay Shambaugh (George Washington University, and The Hamilton Project at The Brookings Institution), and Eduardo Porter (New York Times), October 23, 2018. A collaboration between EconoFact and The Hamilton Project, Brookings.
U.S. fiscal and monetary conditions are different today than they were before the financial crisis. How does this affect our ability to address an economic downturn? Karen Dynan at Harvard University, Jay Shambaugh at George Washington University and The Hamilton Project at The Brookings Institution, and Eduardo Porter of The New York Times discuss the options and constraints facing U.S. policymakers.
In the last three recessions the Federal Reserve cut interest rates by about 5 percentage points to stimulate the economy.
What this Means:
Today's lower equilibrium interest rates make it more likely that monetary policy would need to make use of unconventional tools to spur the economy. On the fiscal front, we have a much larger level of government debt relative to GDP than we did prior to the financial crisis. However, viewing this level of debt to GDP as a reason to restrain stimulus spending in case of a crisis could make the problem worse. Whether the government uses fiscal policy to stimulate the economy will depend more on political willingness, than on the actual limits on fiscal policy.