The Fed Did Right Thing, But It's a Whole New Ballgame
Governments and central banks can manage, but not reverse, a shift in markets and the global economy caused by the coronavirus.
The Fed can’t print a vaccine, but it can cushion economic shocks.
Photographer: Andrew Harrer/BloombergOver the last few days, as concerns mounted about the coronavirus and its impact, markets were pricing in a 50 basis-point interest rate cut by the Federal Reserve as early as this week. Central bankers obliged Tuesday morning by delivering this reduction. They did the right thing.
U.S. stocks, initially cheered by the news, soon reversed course — and indeed, some investors are asking what good this move will do. The Fed can’t print a vaccine, and others have correctly noted that this isn’t a problem created by monetary policy. All of this is true. But central bank easing can help cushion markets from becoming even more chaotic, blunt potential liquidity issues, and maybe prevent a crash as hundreds of inverse and short financial products have the potential to turn a decline into a rout from too much short-side speculation.