Assume a global trade dispute has broken out over tariffs. A…
Assume a global trade dispute has broken out over tariffs. After six months of the dispute, global trade has been significantly reduced. Unemployment this quarter in the US is at 6.5%, up from 6.3% the prior quarter. The stock market declined 13% from its peak and volatility is at normal levels. After an initial spike, corporate and personal bankruptcies are no longer rising, but not decreasing either. Inflation is at 1.6% this quarter, down from 1.75% in the prior 2 quarters. The Fed funds is currently at 2.5%. What actions is the Fed likely to do in this situation? A. Engage in QE to lower long-term rates. B. Engage in Open Market Operations to reduce the Fed Funds rate. C. Print money and buy preferred stock in major banks to encourage lending. D. Implement tailored lending programs akin to those in Covid and the 2008 Financial Crisis to help those uniquely affected by the trade dispute.