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The Fed Must Fight the Next Recession Now

The Fed will have arguably less firepower than in any previous recession.

By Narayana Kocherlakota | April 15, 2019 at 08:51 AM
Pushing back against a recession Fighting against a recession. (Source: Shutterstock)

Almost 10 years after the Great Recession ended, the growing threat of a new economic slowdown raises a troubling question: When the next recession strikes, what can the world’s central banks do? With interest rates low and their balance sheets still loaded with assets bought to fight the 2008 crisis, do they have the tools to respond? This column is one of six looking at that question.The U.S. economy looks strong right now, with unemployment at a multidecade low and inflation running very close to the Federal Reserve’s 2% target. That said, there’s always a multitude of risks — a housing slump, a sharp decline in foreign demand for U.S. goods, an extended government shutdown — that could put the expansion to an end.

The Fed should be taking steps now to prepare.

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