‘The emerging coronavirus pandemic is already crimping global commerce. In response, the S&P 500 has thus far put in two weeks’ worth of declines (the index fell 2.1% last week) since making new highs to start the year.
Even though the U.S. stock market hasn’t even entered a true “correction” phase yet, Wall Street is already clamoring for more Fed stimulus.
Mainstream stock market mavens figure the central bank will step in to limit downside – and they are probably right.
Following the Federal Open Market Committee’s decision on Wednesday to keep rates unchanged, Fed Chairman Jerome Powell said he is “carefully monitoring the situation” with regard to the Chinese virus.
It is hitting inflation-sensitive commodities copper and crude oil especially hard. Oil prices dipped 5% last week while copper plunged more than 6%.
Powell is vowing to push the inflation up to a “symmetric” target of 2% – which in practice means pushing it above 2% for a sustained period to counteract the prolonged period of sub-2% inflation (at least officially).
Last Friday’s U.S. inflation data showed the central bank’s preferred “core” rate running at 1.6% as of December.
The Fed now appears likely to re-embark on a rate-cutting campaign in the months ahead. Meanwhile, it continues to pump liquidity into the Treasury bill and repo markets.
Last week, the Federal Reserve Bank of New York pushed another $83 billion into short-term lending facilities.
In China, central bankers are hitting the panic button and pulling out their monetary bazookas.’