Coordination would be a nice idea

Posted by: Paul Donovan

24 Mar 2020
  • Yesterday, the US Federal Reserve offered unlimited quantitative policy and other measures. The Fed is not trying to stimulate growth. State government policy is to cut GDP, to save lives. By encouraging lending to companies, the Fed may save some jobs. By stabilizing the markets, the Fed allows fiscal policy to be funded. The US Senate failed to agree on fiscal policy.
  • US President Trump seems to want to lift restrictions very quickly. 1) As most restrictions are state level, it not clear the president has the authority. 2) Economic damage is caused by fear of the virus. Lifting restrictions will not end fear if the death rate is rising. 3) Other countries are unlikely to resume normal trade if the virus is not contained. An early end to restrictions risks delaying the end of economic weakness.
  • Business sentiment opinion polls are due. The virus may affect the response rate (who has time to fill in a survey?). Media rather than reality may affect sentiment. However, traders (working from home) are desperate for information, and tend to react to news without caring about the quality.
  • Wuhan in China is set to exit lockdown before the UK. The Tokyo Olympics seem likely to be cancelled.

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