Are There Any Policy Options to Ease the Crisis?
Author: Greg Valliere
March 9, 2020
THE ENORMITY OF THIS MORNING’S MARKET PLUNGE will undoubtedly prompt renewed debate over whether there are any monetary or fiscal policies that could lessen the growing risk of a recession. The cupboard, unfortunately, looks pretty bare.
THERE’S NOTHING THAT ECONOMIC POLICIES CAN DO to reduce the rate of coronavirus infections; the disease may have to burn itself out, and there are encouraging signs from Wuhan that new cases are falling sharply.
BUT THERE’S UNANIMITY AMONG EXPERTS that new cases and deaths will skyrocket in the U.S. in the coming weeks. This has Washington’s politicians on edge — not just because of the electoral implications, but for personal reasons: President Trump and many of his top aides were exposed to the virus at a conference last week.
DESPITE A DRAMATIC INCREASE IN TESTING KITS that will be available by the end of this week, Trump still faces criticism for confusing messaging; he complained yesterday that the fake media is “trying to do everything to make us look bad,” as if this deadly crisis is all about him.
THE FOCUS THIS MORNING WILL SHIFT TO THE MARKET PANIC, and whether there are policies that could make a difference. We sense that the Federal Reserve is not enthusiastic about another 50 basis point rate cut, since the last one prompted the stock market to sell off. The Fed is running out of ammunition, and might focus instead on easing lending standards.
FISCAL POLICY WILL PLAY A ROLE: Larry Kudlow and Steve Mnuchin, not always on the same page, are looking at a basket of options that almost certainly will be unveiled this week — perhaps today. On the list: bridge loans to ailing companies, temporary tax cuts, temporary lifting of tariffs, aid to people on sick leave, etc. A key issue: will a bailout be required for the airline industry?
WHETHER TARGETED STIMULUS could make much of a difference is debatable;
maybe a package could add a couple of tenths to GDP, but the bigger impact would be psychological. Washington has to show that it’s doing something.
THE BEST HOPE FOR THE ECONOMY is that a massive refinancing boom is imminent, along with a dramatic plunge in gasoline prices. That would be a de facto tax cut, putting money in peoples’ pockets, perhaps stimulating an economic turnaround by summer.
BUT IT’S A LONG WAY between now and summer, and the country needs a wartime president, unafraid to call for sacrifice — and, perhaps, prayer.
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