Taking Stock of the Economic Recovery and the Opportunities to Bolster Financial Stability

It seems likely that the economy will grow rapidly this year. This should reduce the slack in the labor markets and eventually return inflation to the Federal Reserve’s 2 percent target. Assuming virus variants do not become especially problematic, we should see an unusually strong post-recession recovery. While the near-term public health and macroeconomic improvements are more than welcome and critically important, I also believe that policymakers across the spectrum should take the time to examine some of the problems brought to the forefront over the past year. In doing so, they can help to ensure we are rebuilding an economy that works for all Americans throughout the inevitable business cycle. The combination of accommodative monetary and fiscal policy, and consumers and firms well positioned to renew spending, should result in returning to full employment much more quickly than after the last financial crisis and Great Recession. However, many of the underlying problems that can disrupt financial stability – as at the outset of the pandemic – still need to be addressed. During the economic recovery, policymakers should be diligent about removing these risks to financial stability, which translate into risks for the economy and every firm and worker in it.