From a broader perspective, the introduction of the PEPP – and the subsequent increase of its initial envelope in early June – led to a period of gradual easing of financial conditions in the euro area, not only for sovereign debt, but also other market segments such as corporate debt. In addition, according to analysis by the Banco de España, the PEPP is having a markedly favourable impact on GDP growth and inflation in the euro area.1 Against the current backdrop of uncertainty surrounding the pandemic’s severity and duration, the best contribution that economic policy can make is to instil confidence and certainty. When it comes to monetary policy, this means ensuring accommodative financial conditions for all economic agents for as long as necessary. In view of how the pandemic 1  See Aguilar et al. (2020). 4  is unfolding and its economic effects, we clearly need more time (and the attendant volume) now than we projected just a few months ago (as you know, the PEPP runs until June 2021). Further, as was true of the first wave, it is highly likely that the second wave’s economic impact will be uneven across the various euro area countries, aside from the fact that the general government fiscal position is also very different. Therefore, retaining the PEPP’s flexibility is essential to head off problems of financial fragmentation that hinder the transmission of our monetary policy. In addition to the PEPP, another instrument that may be recalibrated in the near term are our TLTROs.
In particular, attention should be paid to what could be done to capitalize on the recent stabilization in house prices to improve access to mortgage credit and to foster competition in mortgage origination to ensure a more complete pass-through of low secondary mortgage rates to households. Indeed, if balance sheet dynamics are more important and frictions around housing more powerful than we initially understood, then there should be strong payoff to policies that ease them. At the same time, Congress and the White House should take steps that reduce the short-term and long-term uncertainty over fiscal policy. Currently, households and businesses face elevated short-term uncertainty as to what will happen to tax and spending policies in 2013 and how this will affect the economic outlook. I believe this is restraining hiring and investment today. BIS central bankers’ speeches  7  But families and businesses also face long-term uncertainty about how the country’s fiscal challenges will be addressed. Providing greater clarity about the scope and terms of Social Security and Medicare must be helpful, especially in correcting those expectations that are unduly pessimistic. On this score, Social Security is particularly noteworthy.