No time for tax hikes

Posted by: Paul Donovan

14 May 2020

Daily update

  • US President Trump continued to call for US tax increases. US Fed Chair Powell is not a fan. Increasing taxes on banks and savers (also known as "negative interest rates") will not promote the economic bounce back. If savers are too scared to spend, they will not spend if rates go negative. If banks are too scared to lend, they will not lend if rates go negative.
  • The Bank of England's Governor Bailey hinted at further liquidity injections, and speaks again today. The role of a central bank today is to provide liquidity and ensure that financial markets are functioning. As long as asset prices can be reversed, this policy is anti-deflation rather than pro-inflation.
  • Japan is easing restrictions on about half the economy. The Italian government passed a fiscal stimulus package, with a focus on small businesses. The debate is about how quickly the money gets through (just passing measures, in any country, matters less than getting cash to where it is needed).
  • US initial jobless claims will still be watched – on a non-seasonally adjusted basis, they have risen over 30 million since the crisis began. French unemployment in the first quarter fell (furloughed workers are not unemployed). Spanish and German consumer price inflation is meaningless noise.

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