The United States made encouraging progress on Tuesday in responding to the coronavirus, led by the public sector and involving supportive changes in private sector behavior.
The efforts won’t prevent the global economy from falling into a sharp recession, but they will help many Americans better navigate this extremely difficult phase of the crisis.
The encouraging steps included but were not limited to:
The Federal Reserve enhanced its laser-focused measures by restarting the Commercial Paper Funding Facility it introduced during the 2008 global financial crisis. Late in the day, it added an emergency primary dealer credit facility. It also announced that it would increase its repo market support to now include two $500 billion operations — a massive potential injection of liquidity. In doing all this, and in being open to adapting as it receives information about operational effectiveness, the Fed is looking to counter malfunctions in several important market segments.
The approval of the new funding facilities was possible because of enhanced collaboration between the central bank and the U.S. Treasury (which, in the case of the CPFF, included a $10 billion financial backstop) — an illustration of a stepped-up “whole of government” approach. If supplemented by other laser-focused measures, this can help reduce the threat of market failures that could spill over into a broader economy hit hard by a sudden stop that is destroying supply and demand at the same time.
This whole-of-government approach is not limited to the executive branch and its work with the Fed. There were also other signs of better collaboration with Congress, including on a sweeping fiscal package that is said to be benefiting from a level of bipartisan cooperation not seen on Capitol Hill for several years.
President Donald Trump and Treasury Secretary Steven Mnuchin signaled willingness to bail out deeply disrupted sectors such as airlines and hotels in what increasingly is coming across as an “all in/whatever it takes” approach.
The now-daily White House press briefing signaled gains on the health front, particularly as they relate to efforts to contain the virus and collaboration among scientists as well as states and the federal government.
For someone like me who has been worried about the lack of targeted and timely measures — thus my unusual public criticism of the Fed policy announcements on Sunday — this represents a huge leap in the public sector response. It comes as more companies indicate they are willing to put community and social responsibility ahead of short-term profits. Companies are also demonstrating a stronger spirit of cooperation, especially in the health-care, pharmaceutical, banking and technology sectors. This includes more evidence of openness and collaboration, including more widespread open source approaches to research, design and engineering problems.
As welcome as these measures are, there are important qualifications. While reducing the severity, they are not be able to eliminate what is likely to be a sudden and severe recession for the global economy. That will require medical advances that significantly enhance the ability to contain the spread of the virus, reduce illnesses and increase general immunity.
The government and Fed need to build on their progress through other efforts such as:
Introducing additional laser-focused measures to address other areas of financial market malfunction.
Making sure that otherwise viable companies and state/local governments don’t see liquidity problems turn into solvency ones.
Establishing principles to sort what will be an avalanche of bailout requests, including clarity on the why, how, when, how and exit strategy. Remember, airlines are not the exception in terms of dislocations but rather a leading indicator of the types of shock coming to the vast majority of sectors.
Coordinating better on a global scale.
It’s heartening to see the extent to which different segments of American society are coming together and stepping up to this multigenerational and historically defining moment. This is a common problem that involves collective responsibility and requires coordinated responses at so many levels. Building on Tuesday’s gains will be crucial to our ability to manage the difficult journey and to minimize the scares on the way to the destination.
Mohamed A. El-Erian is a Bloomberg Opinion columnist. He is the chief economic adviser at Allianz SE, the parent company of Pimco, where he served as CEO and co-CIO. He is president-elect of Queens' College, Cambridge, senior adviser at Gramercy and professor of practice at Wharton. His books include "The Only Game in Town" and "When Markets Collide."
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