By: Howard Schneider, Leika Kihara, Francesco Canepa.
Reuters, Feb. 29, 2020
Cratering markets are pushing global central banks to the point they all warned against and worried about, of an evolving global economic shock hitting at a time when their capacity to respond in force is in doubt even as investors hound them for action.
Buffeted by a global trade war, monetary policymakers were already spending down their “ammunition” to keep a sluggish world economy from slipping further, only to now face a new and unexpected blow from the rapidly spreading coronavirus that has sowed fear worldwide.
On Friday afternoon, Federal Reserve Chair Jerome Powell issued a statement in which he said that while the U.S. economy remained strong, the virus ‘posed an evolving risk’ and the Fed stood ready to take action if needed.
“The Federal Reserve is closely monitoring developments and their implications for the economic outlook. We will use our tools and act as appropriate to support the economy,” Powell said.
Powell’s comments came after days of central bankers around the globe emphasizing a wait-and-see approach, causing some head-scratching among analysts who thought the Fed needed to say something to soothe markets.
“The Fed has bungled its message on the virus, has confused markets, and has painted itself into an untenable corner,” Cornerstone Macro economist Roberto Perli said in a note earlier on Friday. “Unless the virus is contained quickly, rate cuts in March (if not sooner) and beyond are a base case, regardless of recent comments by various officials.”