Feb 28, 2020 - Economy & Business

Coronavirus fallout could be worse than the financial crisis

Illustration: Sarah Grillo/Axios

Guggenheim Partners global CIO Scott Minerd tells Axios the fallout from the coronavirus outbreak could be "worse than the financial crisis."

Why it matters: Minerd called out the "cognitive dissonance" in markets as stock prices hit new all-time highs in mid-February, saying in an open letter that he had never "seen anything as crazy as what’s going on right now."

The intrigue: As a member of the New York Fed's investor advisory committee, Minerd says he's been contacted by officials and is expecting a statement regarding "some sort of monetary coordination." This likely means the world's central banks are planning to provide interest rate cuts or additional stimulus.

  • Fed governor Kevin Warsh recently advocated for the policy, in a WSJ editorial.
  • Central banks already have more than $20 trillion worth of holdings on their balance sheets.

Unfortunately, Minerd is concerned that the market's demand for action from central banks is misplaced and little ammunition is available to fight the problem.

  • "In 2008 we were dealing with a financial market shock," he told me last night after our appearance on CNN's "Erin Burnett OutFront."
  • "You can cut rates and that helps alleviate some of the problem. But with a shock like this, monetary policy is pretty impotent. Cutting rates 100 basis points isn't going to do anything."

Go deeper: Stock market rallies despite coronavirus outbreak

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Fed cuts interest rates to near zero in emergency coronavirus intervention

Photo: Mark Makela/Getty Images

The Federal Reserve on Sunday cut its benchmark interest rate to almost zero and launched a $700 billion quantitative easing program in response to the expected economic downturn and stock market slump caused by the coronavirus.

Why it matters: This is the most drastic measure the Fed could take to try to shield the economy amid a global pandemic. The central bank hasn’t made moves this dramatic since the financial crisis.

Go deeperArrowUpdated Mar 15, 2020 - Economy & Business

Market overwhelmingly expects rate cut next month

Data: CME Group; Chart: Naema Ahmed/Axios

In one week, futures traders have gone from seeing virtually no chance of a rate cut at the Fed's next policy meeting to a more than three-quarters likelihood.

Why it matters: Economists aren't sure a rate cut would be effective at offsetting the damage from the coronavirus outbreak, and would put the Fed in a weaker position to bolster the economy should the U.S. fall into a recession.

Bank group calls for return of financial crisis measures

Illustration: Sarah Grillo/Axios

Top officers at America's largest bank lobbying organization are calling on the Fed not only to cut U.S. interest rates, but also to institute a series of reforms that were last put in place during the 2008 financial crisis.

What's happening: The president and CEO, the chief economist and the head of research of the Bank Policy Institute, which represents the nation's leading banks, posted a blog Sunday laying out a set of policy prescriptions they encourage the Fed to use to fight possible economic damage from the coronavirus outbreak.