Trump Adds New Fed Pressure As Central Banks Prepare Coordinated Coronavirus Action

Central banks and finance ministers added to speculation of a coordinated global policy response to the accelerating coronavirus Monday, sending stocks higher and bond yields lower.
Author:
Updated:
Original:

President Donald Trump renewed his attack on the U.S. Federal Reserve Monday, accusing Chairman Jerome Powell of being "slow to act" on the market and economic impact of the coronavirus.

The criticism, however, came even as central banks and finance ministers around the world lined-up to ensure investors that they could step-in and stabilize global financial markets following the worst week for stocks in more than a decade.

The Bank of England joined both the Bank of Japan and the U.S. Federal Reserve in issuing an unscheduled statement pledging to both "monitor" the fast-spreading coronavirus, which has infected 87,000 people in 60 countries around the word, and "protect financial and monetary stability” after last week's equity market meltdown that ripped more than $6 trillion in value from global portfolios.

"The Bank continues to monitor developments and is assessing its potential impacts on the global and UK economies and financial systems," the BoE said. "The Bank is working closely with HM Treasury and the FCA - as well as our international partners - to ensure all necessary steps are taken to protect financial and monetary stability.”

The ad-hoc statement followed a similar missive from the BoJ earlier Monday, in which Governor Haruhiko Kuroda pledged to "monitor (coronavirus) developments carefully, and strive to stabilise markets and offer sufficient liquidity via market operations and asset purchases." Late Friday, Powell said the central bank would "act as appropriate" given that "the coronavirus poses evolving risks to economic activity."

"The Federal Reserve is closely monitoring developments and their implications for the economic outlook," the statement added. "We will use our tools and act as appropriate to support the economy." 

European Central Bank Governing Council member Francois Villeroy de Galhau, who heads the Bank of France, noted Monday that while "we are not there yet" in terms of the need for rate action, "if more was needed and we were convinced that it would be effective, then we can do more."  

France's Finance Minister, Bruno Le Marie, added to the convoy of official support, telling France 2 television that G-7 finance chiefs -- including U.S. Treasury Secretary Steve Mnuchin -- would hold a teleconference later this week to discuss a "concerted" response that would be “as coordinated as possible”.

Bond traders, however, are already pricing in a 100% chance of a 50 basis point rate cut from the Fed when it meets later this month in Washington, according to CME Group futures prices, while analysts at Goldman Sachs think the central bank could act even before the March 18 meeting. 

Benchmark 10-year Treasury note yields hit a record low of 1.1045% in overnight trading before the Bank of Japan statement, and at one stage futures prices implied a sub 1% yield on the notes, suggesting cash continues to pour into fixed income assets 

"Delay is pointless at best, and deeply counterproductive at worst, given the dramatic tightening of financial conditions," said Ian Shepherdson of Pantheon Macroeconomics. "Powell's statement suggests to us that policymakers are assessing the impact of the damage done in markets so far before deciding how and when to act." 

"We are now on alert for a policy change at any time. Our base case, for what it's worth, is that the Fed will ease by a total of 75 basis points by the June meeting. Much more drastic action, though, is entirely possible."