MONETARY & FISCAL POLICY
TOO BIG TO BAIL?
With governments this week set to confirm multi-year expansions ended in the U.S. and Euro area in the first quarter, monetary policy makers WILL URGENTLY NEED TO DO MORE to limit the recession and speed the recovery. Among the options:
- Extending the quantitative easing,
- Helping ease credit to troubled businesses,
- Committing to rock-bottom rates for longer.
The U.S. Federal Reserve, Bank of Japan and European Central Bank, which together cover almost half of global output, will all convene meetings of policy makers this week after the pandemic-driven freezing of economies and turmoil in financial markets propelled them into action.
MONETARY POLICY: The extremity of the virus crisis is forcing central banks to push the limits of the possible. We expect:
- ECB: The ECB to expand its fire fighting Pandemic Emergency Purchase Program – This is after ECB President Christine Lagarde told leaders last week that they may have done too little, too late, and warning that the euro-area economy could shrink as much as 15% this year, they still failed to agree on how to structure a recovery fund.
- BOJ: The Bank of Japan to roll out UNLIMITED QE even and more support for Corporate Debt.
- FED: Ahead of the game in terms of the size and scope of stimulus, the Fed won’t yet add additional support, but will re-confirm it has space to do more.”
- WORLD: More than a dozen central banks hold interest rate decisions this week. Rate decisions are scheduled in Kazakhstan, Hungary, Sweden, Georgia, Kenya, Botswana, Dominican Republic, Colombia and Guatemala as the Pandemic Shock continues to wreck havoc globally.
- FISCAL POLICY: All of these actions will in fact amount to a big “nothingburger” because FISCAL Policy authorized by elected political leadership is what is so urgently needed. It is only the US Congress and a handful of British Commonwealth Parliaments that have taken actions (and then only in a limited and questionably effective fashion). The world is lacking leadership and coordinated when it so desperately needs it!
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