Covid 19 and the impact on Financial policy

COVID-19 and the Impact on Financial Policy Student Names Affiliation Course Number: Course Name Instructor Name Due Date COVID-19 and the Impact on Financial Policy Restrictions to mitigate the spread of the novel Coronavirus (COVID-19) prompted a drastic decline in global economic activity, a drop in commerce, and severe implications for employment rates. Many advanced economies recorded a fall in their gross domestic product (GDP). Today, the severity of the COVID-19 crisis on the United States (U.S.) economy remains comparable to the figures recorded during the Great Depression of the 1930s. In the US, the economic ramifications of the crisis were strongly felt within the labor market as employment rates plummeted sharply, and wage cuts were also recorded (Feldkircher et al., 2021). US policymakers promptly implemented strong economic measures to mitigate the economic impact of the pandemic on businesses and households, and these measures had unprecedented magnitude. The implications of the COVID-19 pandemic on financial policy will be categorized into monetary and fiscal measures. The monetary measures implemented as a result of the COVID-19 pandemic analyzed in this paper include interest rates, quantitative easing, and window discounting. The fiscal measures are evaluated based on the tax policy’s short-term and long-term implications for Big Tech firms in America. Monetary Policy As part of monetary policy, the US policymakers implemented interest rate cuts, provided unwarranted quantitative easing, and executed old tools (i.e., those deployed in response to the 2008/9 global financial crisis) and novel tools tailored to ensure the effective functioning of financial markets. Interest Rates The COVID-19 pandemic prompted the Federal Reserve’s Federal Open Market Committee to reduce its federal fund rate target, or rather the rate at which financial intermediaries paid to acquire funds from each other overnight, by an aggregate of 1.5% points at its boardroom on the 3rd and 5th of March 2020. Such cuts reduced the rate of borrowing to between 0% and 0.25% (Milstein & Wessel, 2021). In this context, the federal funds rate serves as the benchmark for other short-term interest rates and also influences longer-term interest rates. Therefore, this move should be understood as tailored to foster spending potential by reducing the cost associated with utilizing borrowed finances, especially for firms and individual households. The drastic measure was also tailored to ensure that financial intermediaries, including commercial banks, have sufficient liquidity to foster investment and lending. The low interest rates were designed to stimulate economic activity during a period marked by disruption and uncertainty (United Nations, 2020). Quantitative Easing The US Federal Reserve applied an old tool called Quantitative Easing as a monetary policy tailored to address the economic challenges associated with the COVID-19 pandemic. The fundamental objective of this approach was to foster price stability, optimize employment rates, and control long-term interest rates. The government purchased bonds and other assets in order to stimulate economic activity and optimize the financial market. For example, the Fed used quantitative easing as a tool to optimize the economy by buying approximately $500 billion in Treasury securities, as well as $200 billion in government-insured mortgage-backed shares, in the upcoming months (Milstein & Wessel, 2021). The use of quantitative easing had significant implications on...