26 March 2020
Monetary policymakers take aim
The Federal Reserve has launched ‘‘QE infinity’: buying unlimited amounts of government debt, mortgage-backed securities and corporate debt, while offering loans directly to companies. The European Central Bank (back in ’whatever it takes’ mode) unveiled a €750 billion bond buying programme, which should lead to more monthly purchases than ever before. The Bank of England has dropped rates to record lows (0.1 per cent) and its new bond buying round of £200 billion dwarfs the previously largest package of £75 billion in 2011.
Fiscal largesse unleashed
Matching the financial muscle of monetary authorities, the politicians have rapidly cobbled together packages unprecedented in their size and reach. The $2 trillion deal announced by the Trump administration is two and a half times the size of Obama’s 2009 stimulus. It does everything from giving students a 6-month debt repayment holiday to funding hospitals to putting money directly into people’s pockets. The UK’s extensive rescue package will pay up to 80 per cent of salaries of employees kept on through the crisis and Germany has set up a €500 billion bail-out fund for companies.
But is it enough?
Major economies are feeling the pain and unemployment has already jumped by record levels in the US: jobless claims surged to 3.3 million from last week’s 280k - for context, the previous high was 695k in 1982. Business activity is crashing (Eurozone flash PMIs have tumbled to record lows). The picture means even more creative solutions from policymakers may be needed to stop the recession becoming longer and deeper.
The Eurozone also still needs to organise its response. Group members met on Tuesday and the main decision was that countries would be able to tap the European Stability Mechanism (ESM) credit lines “in the range of 2 per cent of GDP” - the US’s fiscal package is nearly 10 per cent of GDP. EU members disagree on the conditions of accessing the ESM and who is going to pay for it. With the recession already taking hold, they will need to act fast.
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