Coronavirus Tests Limits of Central Bank Firepower

Investors are not so sanguine. Stock markets bled through their worst week since 2008, with the SP 500 index falling 11.5 percent amid worries that the outbreak could become a worldwide pandemic. Should that happen, the Fed and other central bankers are poised to respond. The Fed chair, Jerome H. Powell, issued a rare statement on Friday saying that policymakers would “act as appropriate” to support the economy, which investors and analysts took as a sign that officials would cut rates at their March meeting, if not earlier.

President Trump said on Saturday that the Fed needed to move swiftly.

“I think the Fed has a very important role, and especially psychological,” Mr. Trump said, after indicating that Mr. Powell’s statement was insufficient. “We should have the lowest interest rates. We don’t have the lowest interest rates; the Fed rate is higher.”

The president, who has repeatedly faulted the Fed for not slashing rates more aggressively, criticized it again on Saturday, saying it was putting the United States at a disadvantage with other countries with negative interest rates.

“Our Fed should start being a leader, not a follower,” he said. “Our Fed has been a follower.”

But lowering borrowing costs will only get the global economy so far: Rates are historically low across advanced economies. They are already negative across Europe and Japan, where infections are rapidly mounting. Officials in those economies had already been trying to coax households and businesses to spend amid lackluster growth by purchasing huge quantities of bonds.

Article source: https://www.nytimes.com/2020/02/29/business/economy/coronavirus-central-banks-economy.html