almost 4 years ago • 2 mins
Central banks around the world have introduced emergency measures to combat the economic effects of the coronavirus. And now governments are joining them… 🤔
The US Federal Reserve and several overseas counterparts announced yet more “monetary stimulus” on Sunday in a bid to help protect the global economy. On top of further interest rate cuts, the Fed followed the European Central Bank (ECB) in resuming government bond-buying in earnest – and on Tuesday, it said it would also start purchasing short-term company bonds.
The ECB has been criticized for its conservative response to the virus – but European governments aren’t holding back. European Union states are being allowed to breach strict spending limits in order to support their economies, with even Italian and Spanish debt freezes dwarfed by France’s $330 billion loan guarantee package. The UK government also unveiled similar support for individuals and businesses on Tuesday; but all of this may pale in comparison to America’s next move 😲
Part of the reason stocks fell again on Monday was investor concern that central banks were running out of options. But promises of bumper government aid for companies helped markets recover somewhat on Tuesday.
That included the US hinting at the imminent launch of $850 billion of “fiscal stimulus” that, on top of $300 billion worth of tax holidays, could include “helicopter money”: essentially a free check made out to every citizen 🤑
Questions still surround how such an extraordinary move would be funded – something that has proved a challenge in Hong Kong. But desperate times may call for desperate measures. The Bank of Japan said this week it would double the rate at which it buys relatively risky investments like stock funds – something which, alongside negative interest rates, could yet be explored by the Fed.
Coordination, of course, will be key. For more on how the authorities work to keep finance flowing (and people spending), check out our Pack on Central Banks.
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