Global | The Fed and the ECB, cushioning the blow from COVID-19

2020 was seen as the year in which two of the major central banks—the Federal Reserve (the Fed) and the European Central Bank (ECB)—would focus their efforts on normalizing their monetary policy and comprehensively reviewing their strategy. But the onset of COVID-19 changed everything.

Key points

• Key points:
• This year, a lot of this effort has had to be devoted to preserving the provision of liquidity in the markets and the effective transmission of monetary policy.
• Both the Fed and the ECB responded strongly to the pandemic, launching the largest stimulus plans in history, surpassing even those rolled out during the global financial crisis.
• The Fed's first step was to reduce interest rates, at unprecedented speed and momentum, to ease funding costs and to support aggregate demand.
• For its part, the ECB—with no room to lower rates, as they have been in negative territory since mid-2014—turned to non-standard measures.
• Looking ahead, it is very likely that the mark left by the expansion of the balance sheet made by both monetary authorities will remain for a long period of time.

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