The Federal Reserve (Fed) has done almost all it can do to help the economy and now its recovery will rely on fiscal stimulus, said William Dudley, former president of the Federal Reserve Bank of New York in a recent online event.
“The fiscal issue is really the center stage at this point,” said Dudley, on a Zoom call with members of the New York Alternative Investment Roundtable, a non-profit committed to promoting education in the alternative investment industry. “The economic recovery is certainly taking place. When we get the third quarter GDP (gross domestic product) we will see a very big rise in economic activity. But if you look at the slope of that recovery we’ll find out that it’s flattened out pretty significantly in the second half of July and into August. And that’s because the pandemic has become more widespread across a greater number of states.”
At the beginning of the pandemic and lockdown, the Fed created special liquidity facilities to make the market work.
“At this point there’s really not much the Fed has left to do that can replace the damage caused by the fall off the fiscal cliff. People expect to the Fed to keep monetary policy on hold for years, and the Fed expects to keep monetary policy on hold for years,” said Dudley.