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Economic Brief

May 7, 2020

Richmond Fed Brief Explores the Impact of Burgeoning Debt on Monetary Policy

The Richmond Fed’s latest Economic Brief suggests that rapidly rising public and private debt, brought on by COVID-19, could lead to intense political pressure for the Federal Reserve to maintain low interest rates for a long time.

The brief makes four key points: 1) the economy’s responsiveness to monetary policy depends on whether private debt is concentrated in households or firms; 2) there may be calls to delay interest rate normalization to allow time for the labor market to absorb displaced workers and to protect the cash flow of newly indebted businesses; 3) high public debt need not be constraining for interest rate normalization if the federal government is willing to close fiscal gaps; and 4) policymakers may be tempted to use “financial repression” to reduce the debt burden.

The Richmond Fed’s Economic Brief series provides essays on economic issues and trends. Sign up to receive an email notification when a new essay is posted.


As part of our nation’s central bank, the Richmond Fed is one of 12 regional Reserve Banks working together with the Board of Governors to support a healthy economy and deliver on our mission to foster economic stability and strength. We connect with community and business leaders across the Fifth Federal Reserve District — including the Carolinas, District of Columbia, Maryland, Virginia, and most of West Virginia — to monitor economic conditions, address issues facing our communities, and share this information with monetary and financial policymakers. We also work with banks to ensure they are operating safely and soundly, supply financial institutions with currency that’s fit for distribution, and provide a safe and efficient way to transfer funds through our nation’s payments system.

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