Fiery speech Jerome Powell held out a helping hand to the American stock indices, but did not save the US dollar. Investors actively act out the idea of deeper cuts in the Fed federal funds rate in comparison with the ECB. Fuel to the fire pour the rumors about the weakening of the monetary policy of the Federal Reserve at an extraordinary meeting. Donald Trump wondered why Powell is so slow acting, and Goldman Sachs and BofA Merrill Lynch believes that the FOMC meeting on 17-18 March borrowing costs will fall not on the 25 and 50 bp
coronavirus threat was so serious that gave rise to talk on the coordinated intervention of central banks. The Fed announced its readiness to act, depending on the circumstances, the Bank of Japan - the intention to stabilize the market by means of asset purchases, the Bank of England - on interaction with the Treasury and international partners in order to protect financial stability, the Reserve Bank of Australia and all reduced cash rate by 25 basis .P. In this regard, the statement by Christine Lagarde, the ECB's readiness to take appropriate measures, commensurate with the major risks is somewhat belated.
It should be noted that the central banks can not force people to spend, but they are able to help with the decision related to the cash flow problems of companies whose cost of servicing the debt becomes difficult if demand weakens. The fact that the global economy is facing serious difficulties due to the disruption of supply chains and demand reduction indicate a drop in the global index of purchasing managers in the manufacturing sector to a record bottom and a sharp decline in GDP forecasts.
The dynamics of the global PMI
According to the World Bank, the world economy will expand by 2.9% did not, and by 2.4% in 2020, and then under the condition that in the coming months will be defeated by a coronavirus. If not, then the growth will drop to 1.5%. Even in the baseline scenario of events pandemic would cost the global GDP of $ 400 billion. In 2021 growth should accelerate thanks to China, whose economy expanded by 5.5% not as previously assumed, but by 6.4%.
Dynamics of world GDP
Source: Wall Street Journal.
Change, World Bank
Thus, the situation is really very serious and coordinated action by central banks seem reasonable. As, however, and the intention of the G20 finance ministers to organize a remote video conference and to discuss fiscal stimulus. However, the White House prefers not to talk about tax cuts, and the need of monetary expansion. Donald Trump is back on the compliments to criticism. According to the president of the United States, the Fed acts too slowly, and it is unclear why the central bank is still not reduced borrowing costs.
Meanwhile quotation EUR / USD reached the target with the second and at 1,114 designated in one of the preceding materials. The pressure on the US dollar is likely to persist, at least until March 4. It was an unplanned meeting of the Fed could take place on this day with a potential surprise in the form of lower rates.
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