The pandemic - Multiple components define the problem and solutions

The pandemic uncertainty is high. The right set of responses for the health crisis spills over to what will happen to the economic recovery. The health care responses will also feedback onto new fiscal and monetary policies. Each issue has to be looked at both individually and how it may feedback on other policies.

A second pandemic wave will slow or reverse the lockdown across states. Any slowdown of the lockdown reversal will slow any economic recovery. There will be no V-shaped recovery, rather there will be a square root or W-shaped recovery that will be pushed further into the future. To offset the economic slowdown, fiscal and monetary policies have to be employed to mute the pandemic policies.

The Fed reversed the liquidity crisis of March through strong intervention in what were one-way markets. However, all of the liquidity available does not now need to be used. There may actually be an issue with excess liquidity that has led to financial asset inflation. 

Fiscal policy was actively employed in the second quarter, but now there needs to be further stimulus to offset the continued pandemic lockdown effect. Pandemic policies, which curtail growth, have to offset with protective fiscal policy. The funding for fiscal policy will have to be made through further monetary policy bond purchases. 

Stress and response for one part of the crisis leads to policy responses elsewhere. The macro economy is a complex system that is trying to be engineered by a number of policy players with different goals and timing responses. If there is not effective coordination, the system may veer out of control.