FOMC Members: Coronavirus Pandemic ‘Not Directly Comparable’ with 2008 Financial Crisis

The near-term U.S. economic outlook “deteriorated sharply” and became “profoundly uncertain,” prompting the Federal Open Market Committee to drop interest rates to near zero over the course of two unscheduled policy actions in early and mid-March. Minutes released today—which reflect a March 2 conference call and a March 15 committee meeting—showed unanimous consensus about a decline in economic activity in the second quarter and a significant increase in downside risk, given the unpredictable nature of the coronavirus.

Several participants acknowledged the difference between the present situation and the 2008 financial crisis, noting that “that the temporary nature of the shock to economic activity, the fact that the shock arose in the nonfinancial sector, and the healthy state of the U.S. banking system all implied that the current situation was not directly comparable with the previous decade’s financial crisis and it need not be followed by negative effects on economic activity as long-lasting as those associated with that crisis,” the minutes noted.

“Participants stressed that measures taken in the areas of health care policy and fiscal policy, together with actions by the private sector, would be important in shaping the timing and speed of the U.S. economy’s return to normal conditions,” the minutes added.