Richard H Clarida: Federal Reserve independence - foundations and responsibilities

Speech (via livestream) by Mr Richard H Clarida, Vice Chair of the Board of Governors of the Federal Reserve System, at the Federal Reserve Bank of Cleveland, Cleveland, Ohio, 30 November 2021.

The views expressed in this speech are those of the speaker and not the view of the BIS.

The COVID-19 pandemic and the mitigation efforts put in place to contain it delivered the most severe blow to the U.S. and global economies since the Great Depression. Gross domestic product (GDP) collapsed at a nearly 33 percent annual rate in the second quarter of 2020. More than 22 million jobs were lost in just the first two months of the crisis, and the unemployment rate rose from a 50-year low of 3.5 percent in February to a postwar peak of almost 15 percent in April 2020. A precipitous decline in aggregate demand pummeled the consumer price level. The resulting disruptions to economic activity significantly tightened financial conditions and impaired the flow of credit to U.S. households and businesses.

The fiscal and monetary policy response in the United States to the COVID crisis was unprecedented in its scale, scope, and speed. Legislation passed by the Congress in March 2020, December 2020, and March 2021 provided a total of nearly $5.8 trillion in fiscal support to the U.S. economy-about 28 percent of U.S. GDP.

The Federal Reserve acted decisively and with dispatch to deploy each and every tool in its conventional kit and to design, develop, and launch within weeks a series of innovative facilities to support the flow of credit to households and business. The facilities the Federal Reserve either relaunched or designed and developed anew in response to the COVID crisis were established under the authority of section 13(3) of the Federal Reserve Act; under section 13(3), these facilities can be established only in "unusual and exigent circumstances" and with approval of the Treasury Secretary.