“Overall we expect declines in equities to continue until the coordinated response has a size where it offsets the impact from COVID-19,” said Peter Garnry, head of equity strategy at Saxo Bank. “What is happening now is that oil price war and COVID-19 have increased the probability of a new credit crisis.”
As such, the stars may be aligning for extraordinary stimulus. “If fiscal expansion comes with explicit guarantee from the central bank to backstop any funding required then you basically have the closest you get to ‘helicopter money’” said Garnry. “It’s too early at this point but it all depends on how the global pandemic plays out and whether we get another credit crisis.”
Ian Shepherdson, founder of Pantheon Macroeconomics, said on Twitter rising coronavirus cases in the U.S. could see the Fed cut rates to zero and a $1 trillion stimulus package. In the meantime, potentially brace for the Treasury curve to fall near zero with the S&P 500 tumbling further, he wrote.
Former Fed economist Claudia Sahm suggests the federal government should send money to people affected, push banks to ease pressure on borrowers and boost unemployment support. Bill McBride, who runs the Calculated Risk blog, has floated making all virus tests free and expanding insurance for the jobless.
Monetary policy beats most other factors most of the time has been a refrain at this service for decades. There is clear need for combined monetary and fiscal stimulus from most countries and if that is coordinated then all the better. However, while these kinds of supports for consumer activity are necessary, we need to also see progress made in the spread of the virus.Click HERE to subscribe to Fuller Treacy Money Back to top