The three things central banks can do

Posted by: Paul Donovan

30 Apr 2020

Daily update

  • US GDP fell 1.2% qoq in the first quarter (annualizing the data is meaningless). Fed policy was unchanged. Fed Chair Powell committed to keep on doing whatever was needed. Central banks can really only do three things in this crisis: meet liquidity demand; make sure banks can lend; stabilize the bond markets. This is a fiscal policy crisis.
  • It is a shame the Euro area does not have a fiscal policy. ECB President Lagarde is likely to mention this at today's press conference. Europe needs fewer new fiscal measures than the US, as Europe went into this crisis with a functioning welfare system (so some of the support is automatic).
  • French first quarter GDP fell 5.8% on the quarter. We know roughly half the French private sector is on furlough. That is good news (not unemployed) and bad news (not working in the economy). Italian GDP is due, with the forecast range -1.6% qoq to -12% qoq. It will probably fall somewhere within that range.
  • Japanese industrial production was not as bad as was feared. Various European inflation numbers are due and can be ignored. US initial jobless claims are reliable (people will fill in forms to get paid), but include workers effectively on furlough.

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