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https://vanguardinstitutionalblog.com/2020/06/25/but-how-will-we-pay-for-this/

'But how will we pay for this?'

2020-06-25 00:00:00, View more posts by Roger Aliaga-Díaz, Vanguard Blog for Institutional Investors

Content Categorization
/Business & Industrial
/Law & Government/Government

Word Count:
1132

Words/Sentence:
38

Reading Time:
11.32 min

Reading Quality:
Advanced

Readability:
16th or higher

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"But how will we pay for this?"

It's a natural question about global policymakers' multitrillion-dollar efforts to prop up economies and markets against the monumental threat of the COVID-19 pandemic.

Although explicit coordination between monetary and fiscal policy would violate the sacrosanct principle of central bank independence, the reality is that the massive monetary accommodations in most developed markets in response to the pandemic will help significantly from a debt perspective.

Beyond policies of zero or negative interest rates, central banks will need to adopt forward-guidance frameworks.

The U.S. Federal Reserve, for example, will need to put a forward-guidance framework in place as soon as the U.S. economy starts to move from contraction to expansion, which Vanguard's base case foresees occurring in the second half of 2020.

Not even sub-1% yields would be sufficient for a grow-out-of-debt strategy if fiscal deficits remained systematically above 3% (Scenario 3).

What about central banks?

Central bank actions over the coming months and years will also have important implications for developed markets' debt arithmetic.

Recovery will take time and be uneven, coming later to sectors that depend on face-to-face interaction.

Keywords
gdp, emerging, developed, aliaga-díaz, recovery, cares, federal, program, rates, interest, policy, coronavirus, markets, emergency, market & economic, u.s., monetary, debt, bank, fiscal, purchase, central, pandemic, covid-19, vanguard, roger, The Vanguard Blog for Institutional Investors, act, programme, reserve

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