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Scott Sumner On How Central Banks Should Respond To The Coronavirus Threat

David Beckworth profile picture
David Beckworth


  • If the Fed does not reduce interest rates, along with the fall in the equilibrium rate, then monetary policy will get unintentionally tighter.
  • When there's a disruption to manufacturing supply chains, that tends to reduce business investment, puts downward pressure on demand for credit.
  • One of the things that this crisis has reminded me about is that it's hard to have a truly clean supply shock to the economy.
  • In Europe and Japan, I think they need a much more dramatic rethink of what they're doing.

Originally published March 3, 2020

Widespread fear of the Coronavirus has led to market turmoil and uncertainty, and it is important that the Fed responds accordingly.

Scott Sumner is the Ralph G. Hawtrey Chair of Monetary Policy at the Mercatus Center at George Mason University, and a returning guest to Macro Musings. Scott joins the show today to talk about the recent market turmoil caused by the COVID-19 coronavirus and its implications for monetary policy. David and Scott also discuss how the Fed should respond to a possible pandemic, why monetary policy is preferable to fiscal policy during a crisis, and how to approach the central bank credibility problem.

David Beckworth: Hey Macro Musings listeners, as you know last week financial markets were rattled by coronavirus fears. The stock market plunged over 10 percent. The benchmark 10-year Treasury yield had an all-time low near 1.1 percent. And oil prices and expected inflation plummeted. This is a special episode on this financial turmoil that was recorded last week in the midst of the chaos. So some of the data discussed is already outdated. The policy discussion and advice however, remain timely. So check out the show.

Beckworth: Welcome to Macro Musings, the podcast series where each week we pull back the curtain and take a closer look at the important macroeconomic issues of the past, present and future. I'm your host Beckworth of the Mercatus Center, we are glad you've decided to join us. Our guest today is Scott Sumner. Scott is my colleague and the Ralph G. Hawtrey Chair of Monetary Policy at the Mercatus Center. Scott joins us today to discuss the recent market turmoil caused by the coronavirus and its implications for monetary policy. Scott, welcome back to the show.

Scott Sumner: Thank you for inviting me David.

This article was written by

David Beckworth profile picture
David Beckworth is an assistant professor of economics at Texas State University. He is the author of Macro and Other Market Musings.

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