The fiscal response was truly extraordinary. The unanimous passage of the CARES Act, and three other bills passed with broad support in March and April, established wide-ranging programs that are expected to provide roughly $3 trillion in economic support overall — by far the largest and most innovative fiscal response to an economic crisis since the Great Depression. The expansion is still far from complete. At this early stage, I would argue that the risks of policy intervention are still asymmetric — too little support would lead to a weak recovery creating unnecessary hardship for households and businesses. Over time, household insolvencies and business bankruptcies would rise, harming the productive capacity of the economy and holding back wage growth. By contrast, the risks of overdoing it seem for now to be smaller, even if policy actions ultimately prove to be greater than needed. They will not go to waste. The recovery will be stronger and move faster if monetary policy and fiscal policy continue to work side by side to provide support to the economy until it is clearly out of the woods. Since it appears that many will undergo extended periods of unemployment, there is likely to be a need for further support. Second, aid to firms, in particular, the Paycheck Protection Program, and the general boost to aggregate demand have, so far, partly forestalled an expected wave of bankruptcies and lessened permanent layoffs. Business investment appears to be on a renewed upward trajectory, and new business formation similarly appears to be rebounding, pointing to some confidence in the path ahead.
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