Does The Fed Favor Fiscal Stimulus Or Fiscal Relief?

I favor fiscal relief for the unemployed and small businesses, but not fiscal stimulus. But what sort of fiscal policy do Fed officials favor? Most people assume that the Fed wants more fiscal stimulus, and perhaps that’s true. But I’m not so sure.

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Tim Duy directed me to a curious statement by SF Fed President Mary Daly:

The U.S. economy is likely to slow and perhaps even stall in coming months amid the surge in coronavirus cases, San Francisco Federal Reserve Bank President Mary Daly said on Tuesday, but the central bank should not respond, as it typically does to slowdowns, by pulling out more stops.

“It is not the time to stimulate the economy aggressively and get people out in the economy because that would be unsafe,” Daly told reporters on a call after a talk at Arizona State University, held virtually. “I judge policy as in a good place.”

So an increase in aggregate demand would be unwise because it would be unsafe. And yet on October 15 Daly said this:

Monetary policy, including interest rates and the pace of asset purchases by the Federal Reserve are in a good place, but more fiscal stimulus may be needed to ensure that households and state and local governments are able to recover, San Francisco Fed President Mary Daly said Thursday.

And in a November 10 interview, Steve Liesman asked her, “If the fiscal side does less does that mean the Fed needs to do more?” As in almost every single case where Fed officials are asked this question, Daly didn’t directly answer the question. (BTW, it’s a worrisome sign when policymakers don’t answer questions.) Instead, Daly strongly emphasized that fiscal stimulus was needed to support unemployed workers and small businesses. I.e., fiscal relief was needed, not “stimulus”.

We don’t need to send $1200 checks to professionals making $100,000/year.

She also indicated that the Fed had the option of making policy either more expansionary or more contractionary. That’s also my view.

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