Introduction
The current economy is facing an economic recession, most of the businesses that depend on mass for sale have been curtailed since the onset of COVID-19. Small and medium enterprises (SMEs) are the main drivers of economic growth, and most of them have been negatively impacted by the economy’s recession (Lee and Bowdler 102118). Federal reserve need to implement the following action;
Lowering Interest Rates
Firstly, the demand for products and services is reduced, and this complicates the supply chain. To enhance economic expansion and liquidity in the market, the federal reserve needs to lower the interest rates. This will gear investors to invest in the market through loans knowing that the output will be high because of the availability of cheap credit (Raveh 613). SMEs on the verge of collapsing will take this policy to their advantage and take credit to expand their businesses, which will enhance liquidity in the market as the supply chain is opened (Roevekamp 102266). Productivity will increase, thereby creating jobs and innovation that will lead to an economic upturn.
Open Market Operations (OMO)
Secondly, open market operations (OMO) such as bonds will help increase liquidity. The federal reserve can buy bonds, leading to the injection of liquidity into the financial market, opening the economy. OMO help in raising money supply and reducing the interest rates, thereby opening the economy for investments from both local and foreign (Younsi and Nafla 260).
Lowering Reserve Requirements
Lastly, the federal reserve can increase liquidity by lowering the reserve requirements. Lowering the reserve requirements helps the banks to circulate the cash as they can loan the many SMEs in the country, thereby enhancing economic growth (Younsi and Nafla 260). When liquidity in the market is increased, businesses grow as well as the economy.
Conclusion
These crucial actions need to be taken to ensure the welfare of the economy as COVID-19 continues to impact people’s health, and businesses are shutting down. Millions of people have lost their jobs since the onset of the pandemic.
Works Cited
Lee, Seungyoon, and Christopher Bowdler. “US Monetary Policy and Global Banking Flows.” Journal of International Money and Finance 103 (2020): 102118. Web.
Raveh, Ohad. “Monetary Policy, Natural Resources, and Federal Redistribution.” Environmental and Resource Economics 75.3 (2020): 613. Web.
Roevekamp, Ingmar. “The Impact of US Monetary Policy on Managed Exchange Rates and Currency Peg Regimes.” Journal Of International Money and Finance 110 (2021): 102266. Web.
Younsi, Moheddine, and Amine Nafla. “Financial Stability, Monetary Policy, and Economic Growth: Panel Data Evidence from Developed and Developing Countries.” Journal of The Knowledge Economy 10.1 (2017): 260. Web.