Jan 29, 2020

The Fed confronts the coronavirus risk

Dion Rabouin, author of Markets

Illustration: Aïda Amer/Axios

What was going to be a very simple and straightforward policy meeting for the Fed this afternoon has been significantly complicated by the outbreak of the Wuhan coronavirus, fresh geopolitical tensions and an inverted yield curve.

The big picture: While no policy change is expected, all eyes will be on Chairman Jerome Powell's assessment of the economic environment and whether the U.S. central bank is leaning toward adding more stimulus or taking away the punch bowl.

Why it matters: The Fed has flooded the market with cash since September with its ongoing repo market injections and bond-buying program, helping boost market confidence and asset prices. A shift in tone away from ample accommodation could send the market on a downward spiral.

  • "How does Jay Powell walk the line between acknowledging there’s a new risk to the global economy but not overstating how worried they are?" Vincent Reinhart, chief economist at Mellon who spent 24 years at the Fed, tells Axios.
  • "To the extent that he’s on one side or the other tells you how willing they would be to ease policy," by adding more stimulus or cutting interest rates, he adds.

What's happening: Investors bought the dip on Tuesday following Monday's market selloff, as many asset managers remain bullish, betting that the coronavirus outbreak turns out to be a blip on the radar for U.S. and global growth.

  • To wit, Clifton Hill, global macro portfolio manager at Acadian Asset Management, says the backing of the Fed and other central banks has pushed many asset managers into risk assets like stocks, "because it’s just too punitive" to miss out on the rally.
  • "The market is definitely leaning long, no one wants to miss out, they feel like the central banks are being accommodative, [but] what happens if we get a sustained risk-off environment, and how much will markets really suffer with everyone leaning in a similar direction?"

Watch this space: The Fed is unlikely to create a permanent or longstanding cash facility for the repo market, Reinhart says, despite the expectation and repeated calls for one from repo market traders and primary dealers who do business directly with the central bank.

  • That could lead to a repeat of September's rate spikes as the Fed draws down its cash injections.

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In photos: Protests over George Floyd's death grip Minneapolis

Protesters gather at Hennepin County Government Plaza on Thursday in Minneapolis, Minnesota.

Protests in response to the death of George Floyd, a black man who died shortly after a police encounter in Minneapolis, are ongoing as the nation waits to see if the officers involved will be charged with murder.

The state of play: Minnesota's governor on Thursday activated the state's national guard following violent outbreaks throughout the week.

Updated 3 hours ago - Health

World coronavirus updates

Data: The Center for Systems Science and Engineering at Johns Hopkins; Map: Axios Visuals

New Zealand has a single novel coronavirus case after reporting a week of no new infections, the Ministry of Health confirmed on Friday local time.

By the numbers: Nearly 6 million people have tested positive for COVID-19 and over 2.3 million have recovered from the virus. Over 357,000 people have died globally. The U.S. has reported the most cases in the world with over 1.6 million.

Updated 4 hours ago - Politics & Policy

Coronavirus dashboard

Illustration: Sarah Grillo/Axios

  1. Global: Total confirmed cases as of 8:30 p.m. ET: 5,803,416 — Total deaths: 359,791 — Total recoveries — 2,413,576Map.
  2. U.S.: Total confirmed cases as of 8:30 p.m. ET: 1,720,613 — Total deaths: 101,573 — Total recoveries: 399,991 — Total tested: 15,646,041Map.
  3. Public health: The mystery of coronavirus superspreaders.
  4. Congress: Pelosi slams McConnell on stimulus delay — Sen. Tim Kaine and wife test positive for coronavirus antibodies.
  5. World: Twitter slapped a fact-check label on a pair of months-old tweets from a Chinese government spokesperson that falsely suggested that the coronavirus originated in the U.S.
  6. 2020: The RNC has issued their proposed safety guidelines for its planned convention in Charlotte, North Carolina.
  7. Axios on HBO: Science fiction writers tell us how they see the coronavirus pandemic.
  8. 🏃‍♀️Sports: Boston Marathon canceled after initial postponement, asks runners to go virtual.
  9. What should I do? When you can be around others after contracting the coronavirus — Traveling, asthma, dishes, disinfectants and being contagiousMasks, lending books and self-isolatingExercise, laundry, what counts as soap — Pets, moving and personal healthAnswers about the virus from Axios expertsWhat to know about social distancingHow to minimize your risk.
  10. Other resources: CDC on how to avoid the virus, what to do if you get it, the right mask to wear.

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