Introduction and Problem Statement
The COVID-19 pandemic has mostly negatively affected manufacturing and trade processes worldwide. In countries with the highest number of infected, the virus has led to the closure of enterprises, a drop in demand for certain groups of goods, and the restriction of some personal freedoms, even at the household level. At the same time, an improvement in the epidemiological situation in one region does not entail an automatic restart of the global economic system. The problem mainly depends on the state of the largest consumers. This can be considered a second financial crisis (the first significant one highlighted in 2008) that occurred recently (Bachman, 2020). Provoked by the COVID-19 pandemic, an economic decline caused the rapid change in world oil prices, and balance sheets of central banks actively using anti-crisis measures of unconventional monetary policy proliferated.
Reaction to COVID-19
US financial markets began to react to the spread of the Covid-19 pandemic in early March 2020. The COVID-19-related anti-crisis measure system developed by the United States monetary authorities is estimated at more than five trillion dollars to support the financial sector (Aizenman & Ito, 2022). However, a significant amount of these resources was allocated for the financing of budget expenditures supporting financial institutions and enterprises by direct cash payments, increasing unemployment benefits, and tax incentives (Aizenman & Ito, 2022). The implementation of the anti-crisis measures was carried out in several stages, including varied initiatives.
The FRS’s Response
The Federal Reserve System (FRS) of America announced measures to support the economy with liquidity. These regulations were aimed at covering the costs of small businesses’ salaries and assisting small and medium enterprises (Aizenman & Ito, 2022). Under the CARES Act, federal agencies and financial control bodies were to pursue a more flexible policy in relation to distressed mortgage borrowers caused by the COVID-19 pandemic (Aizenman & Ito, 2022). Another step was correlated with the FIMA Facility. FIMA Repo Fund was supposed to ensure the smooth functioning of the US Treasury market (Bachman, 2020). It was also centered on weakening the tension with USD liquidity for foreign central banks and international financial organizations.
Coming out of Pandemic
Fiscal and monetary stimulus measures brought the US economy out of shock. The Fed focuses primarily on the labor market and inflation when making decisions. The mentioned decisions of the central bank and FRS contributed to the stabilization of the economic situation in the country. Moreover, even though the applied measures seem conventional at first glance, the researchers believe these decisions have long-term consequences (Aizenman & Ito, 2022). Therefore, the combination of conventional and unconventional monetary policies can be highlighted within the scope of US authorities’ actions aimed at coming out of the COVID-19 pandemic.
Special Difficulties
COVID-19
Such limitations as self-isolation, the closing of public places, and travel restrictions, which all countries established as basic prevention rules, significantly affected the economy, stopping the functioning of many organizations. These conditions continue to affect the economic situation in the world negatively even today (Aizenman & Ito, 2022). COVID-19’s impact on the economy is primarily related to the strict policy measures to prevent the virus’s spreading (Aizenman & Ito, 2022). As a result of COVID-19, global markets highlighted their most significant and sharpest decline.
Invasion of Ukraine
Considering the problems related to the invasion of Ukraine, specific issues for the country can be mentioned. For the United States, the damage from this geopolitical conflict is minor, and, in addition, a significant part of the capital withdrawn from Europe will be returned to the United States. Considering the current conditions and a relatively stable US stock market, this situation will undoubtedly be beneficial for the country. Despite the limitations related to the business activities in Russia and the export difficulties, America can balance the losses (Mbah & Wasum, 2022). However, the continued rise in energy prices will lead to further inflation. Even the United States economy will be affected by this problem. It will create long-term dangers for the American financial market (Mbah & Wasum, 2022). This will further complicate the implementation of the monetary policy measures of the US Federal Reserve System (Mbah & Wasum, 2022). The risks of the Fed’s “backdating” policy will grow and become a factor of instability for the US capital market.
Conclusion
Concluding the topic, it is worth highlighting that the country’s authorities, including the central bank and FSR of America, have presented an excellent COVID-19-related policy regulation. The combination of conventional and unconventional measures helped overcome the recent problems and prevent future negative consequences. The decision to support small businesses and allocate the money for financing different organizations and individuals is a rational activity. In the case of potentially damaging to the whole country’s economy pandemic, the central bank and FSR focused on minimizing the long-term consequences of COVID-19.
References
Aizenman, J. and Ito, H. (2022) ‘Post COVID-19 exit strategies and emerging markets economic challenges’, Review of International Economics, 2022, pp. 1–34.
Bachman, D. (2020) Federal reserve monetary policy in the time of COVID-19. Web.
Mbah, R. and Wasum, D. (2022) ‘Russian-Ukraine 2022 War: a review of the economic impact of Russian-Ukraine crisis on the USA, UK, Canada, and Europe’, Advances in Social Sciences Research Journal, 9(3), pp. 144–153.