Time for some economic leadership

Posted by: Paul Donovan

11 Mar 2020
  • US economic leadership in dealing with the coronavirus has been limited. Yesterday's fiscal policy press conference revealed there is no fiscal policy yet (US President Trump did not attend). The Fed's rather inept rate cut was a broad, not a targeted, measure. Broad measures may help the bounce back, but do little to limit the downside.
  • The UK government budget today is one opportunity for economic leadership. Measures to help small businesses manage cashflow problems and to support self-employed workers could matter. The Bank of England cut UK rates 0.5%, citing the need to help business and household cashflow. Perhaps more importantly, there is a new targeted lending facility to aid small businesses.
  • Tomorrow's ECB meeting is an opportunity for liquidity leadership. Increasing the tax burden of negative rates is less attractive. Keeping bond yields low and targeting support during the downswing of the virus is attractive. (Italian banks, like some UK banks, are offering mortgage holidays to people affected by the virus).
  • Former US Vice President Biden performed strongly in the primaries overnight. Market attention is likely to shift to the presidential race in November. US consumer price inflation is due. The virus is more disinflationary than inflationary, but this may take time to appear.

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