Contagion and Containment: How Can We Treat Our Ailing Financial Markets?

By Lisa James & Lori Zager

Medical experts say widespread lockdowns and social distancing are necessary to contain the coronavirus and avoid overwhelming the hospital system. This draconian solution creates a whole new set of patients: the financial markets and the U.S. economy.

Like a medical patient with a serious disease, the market needs swift and clear action to stabilize and rebound. And like a patient with a complex condition, the markets require a coordinated team to design and implement the right treatment strategy.

So who’s on our team—and how are they doing so far?

The Federal Reserve

Fed Chair Jerome Powell earns an A for the unprecedented speed and scope of action, as well as for providing reassurance that additional support will be deployed if needed.

The 2008 financial crisis provided a useful playbook for emergency intervention. The swift and aggressive actions taken then helped the U.S. economy recover faster than many global peers, particularly Europe.

Powell has been clear: the Fed’s role is to provide a bridge so businesses of all sizes can survive the downturn and recover as conditions normalize.

So far, at least seven separate programs have been introduced, including:

• Backstopping money market funds to ensure liquidity and allow investors to withdraw cash
• Injecting liquidity into short-term funding markets (including commercial paper and repo markets)
• Large-scale asset purchases, including Treasury and mortgage-backed securities
• Corporate credit facilities to stabilize markets and support business lending

The U.S. Congress

The relentless fall in the S&P 500 increased pressure on lawmakers to act quickly.

Congress earns a B—slow to respond, but ultimately delivering a large-scale package: approximately $2 trillion, significantly larger than the initially proposed $750 billion, with potential for additional measures if needed.

The size of the response matters. If 2008 is any guide, early and forceful intervention helps restore confidence.

The package focuses on:

• Direct support for workers and households
• Financial assistance for businesses
• Strengthening safety-net programs such as unemployment insurance and food assistance

Like the Fed, Congress is attempting to bridge the gap—providing liquidity and income support until lockdowns ease and economic activity resumes.

The President

The President’s report card is mixed.

• A: Early travel restrictions on China
• D: Mixed messaging on containment and delayed coordination on testing, ventilators, and preparedness

More recently, the administration has aligned more closely with public health guidance and invoked emergency powers to accelerate production of critical supplies.

A central tension remains: balancing public health outcomes against economic shutdowns. Questions about timing and strategy—such as when and how to reopen parts of the economy—remain unresolved and politically sensitive.

State and Local Governments

Governors and local officials are on the front lines of both containment and enforcement.

Performance has varied significantly by region:

• States like California acted early, with more contained infection growth
• States like New York and Louisiana experienced sharper surges after delayed action

This divergence highlights a structural challenge of decentralized governance: inconsistent timing and policy responses across states, and the risk created by unrestricted movement between regions with different containment levels.

What Is the Current Prognosis for Markets?

While the Fed and Congress are working aggressively to stabilize the system, a smooth return to normal is unlikely.

Some commentators warn of a potential Great Depression scenario. However, policymakers appear highly aware of historical lessons. Unlike the policy mistakes of the 1930s, today’s response is characterized by rapid monetary easing and unprecedented fiscal stimulus.

Even the political approach has shifted, with potential reconsideration of tariffs and other restrictive measures as economic risks rise.

The trajectory of both the virus and the markets remains uncertain. However, this crisis will eventually end, and history suggests that economies—and markets—recover as confidence returns.

In the meantime, Americans will continue to adapt, support one another, and ultimately rebuild.

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