Question

Is the Federal Reserve guided by Taylor Rule during the Covid-19 outbreak?

Answer 1

It shall be noted that the monetary policy rule that accounts for growth, inflation, and unemployment called the "Taylor Rule" calls for 0.75% points worth of cuts in interest rate if GDP growth goes from 2% to 0%, while estimates of financial markets' impact on growth would suggest recent stock market declines and credit spread increases justify 0.50%points of easing.

Hence, there is no doubt, Federal reserves are guided by Taylor's rule during the COVID-19 outbreak.

It is rightly said that in this period of coronavirus pandemic, the Fed is simply doing what the textbooks say it should.

Fed is ensuring that economic activity does not get badly hit. Fed's lowering of interest rate, lowered the rates for car loans, mortgages, and inventory financing across the economy.

Thus, one can say that Federal Reserve is guided by Taylor Rule during the Covid-19 outbreak