US monetary policy should be patient rather than preemptive – leading macroeconomic influencers

25 March 2021 (Last Updated March 25th, 2021 08:19)

Governor Lael Brainard believes that accelerating pace of vaccinations and significant fiscal stimulus, should be able to support a strong and inclusive recovery as the economy reopens fully.

US monetary policy should be patient rather than preemptive – leading macroeconomic influencers
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Governor Lael Brainard believes that a combination of patient monetary policy, together with accelerating pace of vaccinations and significant fiscal stimulus, should be able to support a strong and inclusive recovery as the economy reopens fully.

David Wessel

David Wessel, a journalist and the director of Hutchins Center on Fiscal and Monetary Policy at the Brookings Institution, shared Governor Lael Brainard’s speech on how the monetary policy can take a patient approach rather than a preemptive approach to support a stronger and inclusive recovery as the economy gradually reopens.

According to the economist and Federal Reserve Board of Governors, Lael Brainard, after a plunge in economic activity in the last few months of 2020, the year 2021 witnessed considerable growth in expenditures in personal consumption and durable goods, especially among lower-income households who received stimulus cheques provided in the Coronavirus Aid, Relief, and Economic Security Act (CARES Act).

Activity in the labour market improved in January and February 2021, following weaknesses at the end of 2020. However, workers in the lowest-wage quartile are still facing high levels of unemployment – around 22% in February this year – reflecting the disproportionate concentration of low-wage jobs in services sectors still sidelined by social distancing protocols. The sector accounts for more than 40% of the net decline in private payrolls since February 2020. Overall, the US is far from a broad and inclusive maximum-employment goal with 9.5 million fewer jobs than pre-Covid, according to Brainard.

Likewise, inflation remains far below the 2% goal, while despite accelerated vaccinations  approximately two-thirds of the adult population in the US is yet to be receive their first dose of the vaccine. There are also additional risks of more deadly strains of the virus, social-distancing fatigue, and vaccine hesitancy, Brainard added.

Dean Baker

Dean Baker, a senior economist at the Center for Economic and Policy Research, retweeted a debate on the case for waiving some intellectual property rules on Covid-19 vaccines, while experts from the International Federation of Pharmaceutical Manufacturers and Associations argued that the focus should be on companies’ profits first.

According to Baker, Covid-19 vaccines should be free for everyone for several reasons. In his view, much of the world still does not have access to vaccines. As a result, it could be 2023 and 2024when the entire world gets completely vaccinated. There is also the risk of having to develop new vaccines altogether to combat the new virus strains, which can be deadlier than the circulating ones, he opines.

In addition, government have aided in funding these vaccines, right picking up the tab for clinical testing, to research and regulatory approvals.

However, Thomas B. Cueni, director general of the International Federation of Pharmaceutical Manufacturers and Associations, argued that waiving intellectual property rights is not the way to get the everyone vaccinated.

According to him, passing on a patent would discourage companies that have been working incessantly on developing these vaccines within restricted time.

It would indicate that they do not have intellectual property rights even during a global catastrophe such as the pandemic, and will thereby reduce their incentive to rapidly develop vaccines in future emergencies.

Christophe Barraud

French economist Christophe Barraud shared an article on how measuring inflation has become difficult after a year of pandemic expenditures.

Old benchmarks are incapable of capturing Covid shifts in consumption, as researchers are finding it difficult to collect the price data online. The upset job structure that is crucial to determine the inflation rate is also an obstacle.

Statisticians looked at the Consumer Price Index to determine what Americans typically spent their money on in the past, compared to what they spent on during the pandemic. Data revealed that people spent more on groceries and alcoholic beverages than on clothing and general merchandise. In addition, experts state that it has been difficult to visit stores and check the prices of commodities due to Covid restrictions. This has led to gaps in the data collected. Meanwhile, most shopping has moved online, making it even more difficult for statisticians to collect data, the article noted.

The economy’s rapid rebound from the pandemic slump has triggered concerns over a potential rise in inflation. Data revealed that measures of prices paid and charged by US business rose to record levels in March.