By Orbex
As the total number of COVID-19 cases in the United States continues to rise, the White House has started taking baby steps to tackle the serious effect the outbreak is going to have on the economy.
The Administration held an emergency meeting to discuss taking fiscal actions to help the private and public sectors weather the storm, Trump announced at a press conference in Capitol Hill yesterday.
Despite considering cutting tax rates to zero, the US President called on the Fed once again. Trump believes fiscal and monetary measures are essential in order to stimulate the economy.
True to form, the President went off against Fed Chair Powell on Twitter, stating:
Although a collective measure seems to be the only solution at the moment, how this is going to help the economy is a different story. We’ve already seen the Fed cutting way ahead of their next meeting and before the White House even made a statement on the matter. And they could cut further ahead of the next FOMC on March 18.
Free Reports:
But will cutting rates help while liquidity injections continue, or will it lead to a blow? Rates must be closely watched because once the US goes negative, that could be a one-way ticket to despair, as the 1930s showed us.
On the other hand, just this morning, we saw the BoE cutting interest rates in a unanimous emergency move.
It seems that the Monetary Policy Committee’s decision to provide support on the back of the coronavirus crisis is going to boost lending. However, how this is likely to affect credit risk is still unknown.
With the central bank followed suit with a 50% basis point cut, the UK’s budget will now focus on short-term emergency needs. That said, there is market talk that the government might need to also step in to add extra liquidity.
Undoubtedly, fiscal policy is way more important at this stage than monetary policy is. This seems to suggest that whatever medium-term bounce is seen on the pound might be only temporary. If and when the government steps up its game, this should change the game-play.
The need for financial stability in an extremely high volatile environment will likely force the ECB to cut rates too, tomorrow.
However, the European bank doesn’t have as much room to the downside as the Fed, BoE, RBA or BoC for that matter. A ½ percent cut could really hurt the euro.
BoJ’s Kuroda is facing the same problem as Lagarde – how much and when rather than if.
The Japanese Governor warned that the banks “will not hesitate to take appropriate policy due to the spread of the coronavirus” only yesterday. The biggest concern at this moment lays with governments.
By Orbex
