Federal Reserve Chairman Jerome Powell issued a statement this week reaffirming that the central bank would use its tools and “act as appropriate to support the economy,” to soothe the jittery investors.
While Powell said the “fundamentals of the US economy remain strong,” he noted that “the coronavirus poses evolving risks to economic activity” and the central bank “is closely monitoring developments and their implications for the economic outlook.”
Powell’s statement came after US stock markets crashed for the seventh day. The markets are tanking because of the fear among the investors about coronavirus that continues to spread.
With the fear of the world being at the tip of a pandemic and potentially recession, Powell’s comment has the industry now pricing a 50bps rate cut in March.
“It was certainly an attempt to calm things down. This is the strongest hint you can make that a rate cut is coming,” said Torsten Slok, an economist at Deutsche Bank.
President Trump tried to play down the economic threat to the United States from the deadly virus adding “I hope the Fed gets involved and I hope it gets involved soon,” which isn’t anything new.
Federal Reserve Bank of St. Louis president, James Bullard also supported the rate cut during his speech on Friday as he said that the Fed “could cut rates if we got a global pandemic that actually develops with health effects that seem to be approaching the same level as seasonal influenza, but that doesn’t look like the baseline as of today.”
A Normal Day for Bitcoin is the Worst Week for Stocks
The stock market meanwhile, continues to suffer, recording its biggest weekly fall since 2008 during the recession. The Dow Jones Industrial Average lost 10% this month alone, the S&P 500 shed 8.4%, and the Nasdaq fell 6.4% in February.
While stock market indexes slumped over the virus worries, traditional safe haven assets like gold soared to 7-year highs and US govt. securities pushed up the prices and the yields to record lows as people look for safe investments.
The government has already started reacting, with Hong Kong handing out $10,000 Hong Kong dollars ($1,280) to about seven million people permanent residents over the age of 18 to ease the financial burden and boost spending. While the German government offered debt relief to struggling municipalities, Italy has put a hold on dues from the affected areas.
“Governments are getting aggressive,” said economist and trader Alex Kruger. “The coronavirus may be triggering a new age of fiscal policy. MMT is getting closer.”
It might be time to stack some more sats as central banks would “abuse” its tools — cutting interest rates and printing money — “at the exact moment we head into the Bitcoin halving,” said Morgan Creek Digital co-founder Anthony Pomliano.
And, the solution to central banks’ aggressive policies could be the uncorrelated bitcoin with a 21 million hard cap that could also see a boost from all the free money that they would pump into the market.
