The primary government levers that will help determine economic outcomes are also the primary ones that will help determine health outcomes. jbarro writes
Photo: Sarah Silbiger/Getty Images Stocks opened higher on Monday, following a rare bit of good economic news amid deepening worries about a potential coronavirus pandemic. Central banks in the U.S. and Japan made public statements about their commitment to use monetary policy to offset the economic damage that could result from extensive business closures, illnesses, and deaths.
“Using monetary policy to counteract the economic effects of the coronavirus outbreak would be a bit like using a hammer to try to unscrew a bolt,” wrote Justin Lahart in The Wall Street Journal last week. “But if a hammer is the only tool you have, you use it.” In the short term, the answer is, “Very little.” The closure of factories and disruption of supply chains make it difficult for some companies to sell goods at any price, and lower interest rates won’t do anything to fix their troubles. In fact, with such a supply shock, you would usually worry that low interest rates would be inflationary — low rates would make people more eager to buy goods, but wouldn’t make it any easier to sell them, and so prices would just get bid up.
That the banks will play their most important role in the aftermath of the epidemic is why statements like those from the Fed and the Bank of Japan are so important: The markets need reassurance about what the banks will do in the future. But investors also expect the banks to take action soon. Futures contracts on U.S.
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