April 22, 2020

Economist: The Fed is becoming a ‘lender of last resort’ during COVID-19 pandemic

WHAT: One in four small businesses is closed in the United States and a historic number of Americans are unemployed due to the spread of the COVID-19 pandemic. In response, the Federal Reserve has opened two facilities — a Primary Dealer Credit Facility and a Commercial Paper Funding Facility — that will “support the flow of credit to households and businesses.”

WHO: Cathy Zhang, an economist and associate professor in the Krannert School of Management at Purdue University, is an expert in monetary policy and its effect on small business financing. 

zhang-cathy Cathy Zhang (Courtesy photo) Download image

QUOTE: “The Fed is serving as a kind of ‘lender of last resort’ instead of using only conventional responses like interest rate cuts, which do not have much of an effect on consumption and investment at already low rates. So they’ve been resorting to alternative measures to respond to the credit needs of small businesses, which have been disproportionally affected by the pandemic and need lending the most to sustain their operations. Because businesses with 500 employees or fewer make up over 99% of all businesses and more than half of the labor force in the United States, policies designed to help provide credit for small businesses are essential to avoiding a prolonged recession.”

MORE INFORMATION: Zhang is a faculty affiliate in the Purdue University Research Center in Economics.

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Writer: Joseph Paul, paul102@purdue.edu (working remotely but will provide immediate response)

Source: Cathy Zhang, cmzhang@purdue.edu (available for phone and webcam interviews)

Note to Journalists: A small business stock image and a photograph of the professor are available to journalists via Google Drive.

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