SALT LAKE CITY — Drastic action by the Federal Reserve could help businesses suffering under the uncertainty of the coronavirus epidemic, including in the Beehive State.
The nation’s central bank on Sunday dropped its key interest rates to zero and pledged to invest hundreds of billions of dollars in government- and mortgage-backed securities as COVID-19 sweeps the U.S., a measure aimed at preventing a crisis similar to the Great Recession.
The moves are meant to stabilize the national economy, explained a Utah analyst, and provide access to much-needed capital for businesses that that are being hit hard by government-recommended closures and consumer self-isolation from coronavirus.
“What the Federal Reserve did is, they essentially are using every tool that they have to ensure that the economy is able to have the tools to continue to operate,” said Robert Spendlove, Zions Bank senior vice president and economic and public policy officer. “Essentially, cutting the federal funds rate down to zero injects more liquidity into the economy. It makes it easier to get loans, makes those loans less expensive and it essentially just props up and supports the economy.”
He acknowledged that when people start to get nervous in crisis situations such as economic downturns and recessions, they start to pull in and spend less.
“So if we find ways to give people more money, then it gives them more confidence,” he said.
He noted that the Fed also implemented what’s called quantitative easing, essentially reversing course from the monetary policies that had been in place most recently. Quantitative easing is a monetary policy in which the central bank purchases a predetermined amount of government bonds or other financial assets as a method of adding money directly into the national economy.
“They did quantitative easing two times during the Great Recession and now they’ve started this up again,” Spendlove said. “They will be buying about $700 billion of treasury and mortgage-backed securities — just kind of injecting more money into the financial system.”
He said the move should make it easier and cheaper to get loans — to buy a new home or to buy a car. Fed leaders hope to encourage people to continue to get loans to keep their enterprises afloat, he added.
“Small business loans are going to be much more prevalent now,” he said.
Spendlove noted that President Donald Trump last week announced that the U.S. Small Business Administration will be offering low- to no-interest loans to small businesses to help them bridge the economic gap created by the coronavirus crisis and help them move forward.
“They’re going to have access to SBA loans in large numbers, essentially beginning immediately,” he added.
He said in many ways, the coronavirus crisis is unprecedented — at least in modern life.
“We’ve got experience addressing natural disasters on the small scale, but we don’t have experience addressing a natural disaster that is worldwide simultaneously,” Spendlove said. “So it’s really hard to be able to figure out when this is going to be over and how big the impact is going to be.”
Among the likely impacts will be some job losses for people working in the service industry, he said.
“You’ve got a mix of not only a public health crisis, but then also an economic crisis. Right now the focus is trying to address the public health crisis, while also addressing that economic crisis,” he said. “It’s hard to say exactly what’s going to happen in the near term, but there will be (employment) displacement.”
He said it will be virtually impossible to prevent some of the economic impacts that the communities around the globe are currently experiencing, such as ski resorts closing, entertainment venues shutting down and events being canceled or postponed throughout the world.
Right now the focus is trying to address the public health crisis, while also addressing that economic crisis. It’s hard to say exactly what’s going to happen in the near term, but there will be (employment) displacement.
–Robert Spendlove, Zions Bank senior vice president
“The economy in our country needs to continue to operate and there are many things that need to be done and food service is one of those essential functions that we all need,” Spendlove said. “We all need food service, we need public safety, we need news. There’s a lot of areas that we have to keep going.”
With so much uncertainty about the possible duration of the coronavirus crisis, he said civic and national leaders will have to start planning for a way to reignite the economy to get business back on track.
“We don’t want to have businesses or individuals going out of business and losing their jobs, and exacerbating the impact of this,” Spendlove said. “So the goal right now is to really give people that access to capital and that access to money to carry them through this period, and then be able to have that money to restart and to get going again, once we start to return back to normal.”
He warned, however, that the crisis is currently “at the beginning stages” and it will take time to recover.
“This is something that we go through. It’s difficult right now, but we will get through this,” he said. “One of the important parts (to remember) is our economic fundamentals before this was really strong, and once we get through this, we’ll return back to a period of growth again.”