Blog Post

Insight: Federal Economic Stimulus Efforts

By: Phil Dean

Note: The opinions expressed are those of the author alone and do not reflect an institutional position of the Gardner Institute. We hope the opinions shared contribute to the marketplace of ideas and help people as they formulate their own INFORMED DECISIONS™.

Since the Great Depression nearly a century ago, the U.S. Congress and President have used fiscal policy (taxing and spending powers) and the Federal Reserve has used monetary policy (influencing interest rates through control of the money supply) in an attempt to counteract economic declines. Over the past year, both fiscal and monetary policy tools were deployed on a massive scale to counteract the pandemic recession.

These massive federal efforts initially propped up the faltering Utah economy during the most severe pandemic-induced economic impacts in March and April of 2020, and have facilitated the significantly strengthened economy that Utah enjoys today. As additional federal resources arrive in Utah in the midst of a top-performing economic recovery, Utah families, businesses, and state and local governments have a unique opportunity to wisely invest these resources for long-term prosperity.

U.S. Monetary Policy

As the pandemic recession took hold, rapid expansionary monetary policy efforts by the Federal Reserve stabilized shaky financial markets and led to reduced interest rates, propping up languishing economic activity (see Figure 1).

Lower interest rates encourage more economic activity by reducing interest costs on financed goods. For example, when mortgage interest rates drop, this directly encourages more homebuying (and homebuilding), as more buyers can purchase a higher-priced house while keeping the same monthly payment. Moreover, when existing homeowners refinance their mortgage to a lower interest rate, those interest savings permanently free up disposable income that can be spent elsewhere in the economy or saved. Similarly, business costs for financed equipment or buildings also drop as interest rates drop.

Figure 1: Selected U.S. Interest Rates