‘Now Is the Time’: A Fed Official Urges Congress to Plan for Recessions

One such proposal is the so-called Sahm Rule. Created by Claudia Sahm, a former Fed economist, it would use a pronounced jump in the unemployment rate to trigger a fiscal response such as stimulus payments to households.

Ms. Brainard’s colleague Mary C. Daly, president of the Federal Reserve Bank of San Francisco, has also made a case for government spending policies that kick in immediately.

Central bankers “face greater uncertainty about the impact of our tools and their ability to achieve our goals,” she said in a speech this month. “Fiscal policy will need to play a larger role in smoothing through economic shocks,” and “expanding the array of automatic stabilizers that form part of the social safety net can help mitigate the depth and duration of economic downturns.”

Ms. Brainard did not endorse any specific set of policies, but pointed out that while “monetary policy is powerful but blunt,” fiscal policy can be used to tackle precise problems — important when a big share of households “have low liquid savings and are particularly vulnerable to periods of unemployment or underemployment.”

While some congressional committees have looked into supplementing or strengthening existing spending programs that work to counter recessions — like unemployment insurance, which pays out more when times are tough — they have not been beefed up since the Great Recession.

Some economists worry that a divided Congress would be slow to coalesce around a big spending package, like the crisis-era American Recovery and Reinvestment Act, to help right the economy in a future downturn.

The onus does not fall entirely on lawmakers. As Ms. Brainard suggested, the Fed itself is thinking about how to make monetary policy faster-acting in times of crisis.

Article source: https://www.nytimes.com/2020/02/21/business/economy/fed-rate-recession-congress-stimulus.html