Fed’s Injection Worth US $1.5 trillion And Other Coronavirus Impacts On Global Economy

Coronavirus outbreak has become the buzz word around the globe in the last few weeks, and this has reached a greater intensity, as the financial markets have come crashing in the last couple of weeks, while at the same time, the economic damage caused by the disease is reaching unprecedented levels.

Up till now, the total number of global cases confirmed have been reported at over 135,300, with around 4970 people reportedly dying due to the infection. In the United States of America, around 1,900 people have been confirmed to have come into the grip of Covid-19, and around 39 have died, with a nearly 0 per cent recovery rate in the country. Some high-profile cases have also come into the light, especially from the United States of America and Canada, as the famous Hollywood Actor Tom Hanks, and the Canadian Prime Minister Justin Trudeau’s wife Sophie Trudeau have also been infected with the virus. The other aspect of the economic impact has been on the sports side. The NBA has suspended its basketball season until further notice, which is expected to cost the league around US $600 million in terms of TV revenue. Italian Football league, Serie A has also been suspended until further notice from the officials, as players from various teams were reported to have been infected with the virus. This is expected to cost around €700 million in both TV and ticket revenues.

Amidst this economic loss and the faltering economies, the Federal Reserve of the United States of America has declared additional measures to prop up the liquidity in the money market, with an injection of around US $1.5 trillion.

This came after the NYSE halted trading due to a circuit filter, after plummeting by approximately 10 per cent during the day on 12^th March. The Dow Jones Industrial Average was down by approximately 2,352.60 points leading to its worst single day finish since 1987. The Standard & Poor’s 500 index was also down significantly by around 9.5 per cent as stocks went down and a bear market situation came into picture, which was reflected in the investors’ confidence during the day. The S&P 500 single day nosedive indicates  a 20 per cent decline from an all-time high. After the announcement was made by the Fed to inject more money into the economy, the wall street responded for a brief period with positive momentum, but later fell even further.

US Fed’s Monetary Policy action

The Federal reserve of New York on March 12, 2020 stated that it will have to better on its existing funding operation, by the process of buying repurchase agreements or as they are popularly called “Repos” by US $1.5 trillion over the next two days. The statement also mentioned that these changes had been made, so that the central bank could address highly unusual disruptions in Treasury financing markets as well as the potential negative impact to the overall US economy which have been primarily driven by the coronavirus outbreak. The Federal Reserve statement also mentioned that they had widened the range for its reserve repurchase agreements, which were formerly restricted to just the short term Treasury bills (T-Bills), and now would also include a broader range of money market instruments or any other types of financial instruments. The moves are designed to preserve liquidity in the market; in other words, the Fed wants to prevent “freezes” and make sure buyers and sellers still have the ability to trade. It’s the third time in four days the New York Fed has announced that it will bulk up lending in the repo market: on 10^th March it announced an injection of US $50 billion, and it added another US $25 billion on 11^th March (Wednesday).

ECB’s stance on monetary Policy Action

The President of the European Central Bank and the former Chief of the International Monetary Fund, Christine Lagarde made a controversial statement, which was exactly the opposite of what her predecessor said regarding fighting the outbreak of coronavirus, that the ECB would do anything in its powers to secure and protect the Eurozone from the global economic slowdown that has been caused by the Coronavirus epidemic. When asked if the ECB would cut interest rates, she said that the ECB’s objective was not to close down bond spreads as there were other policy actions and tools that could do that. She also mentioned that the Eurozone currently requires a coordinated effort for the purpose to fight against weakened outlook and also to protect the regions’ economy from any further downside risks. Immediately after this statement, the Italian 10 Year bond yields moved from 1.3 per cent to 1.8 per cent, leading for the president of the ECB to come under heavy fire for the statement that she made.

How does United Kingdom’s budget aim to fight the coronavirus?

Policy action by the British government was very much on the cards since the start of the virus outbreak. The last month has been quite tormentuous for the United Kingdom. The country has so far registered more than 590 cases of coronavirus infections, and at least ten have died from contracting the disease. The related travel ban and restriction on movement of goods have already cost the country billions of pounds in losses. Several companies, who have deep trading relations with China, have already issued revenue and profit warnings. Now with the virus scare spreading its wings closer to home, the danger to the country has become even more pronounced.

The prominence of the Covid-19 can be gauged by the fact that Rishi Sunak, one of the youngest chancellor to present a budget in the United Kingdom’s House of Commons, started his budget speech by addressing Coronavirus, mentioning that he is clear that this is an issue above the party lines, that has a potential to impact each and every person. He also mentioned that his budget will be directed to help all the people and the families in the United Kingdom and help them earn and keep everything that they deserve. Mr Sunak also mentioned that his administration and the people of the country would get through these turbulent times together. He stated that the citizens of the United Kingdom, might be a little worried currently, but in no way are they daunted by what’s coming ahead for them. He assured that while the economy continues to face difficulties, the government’s prudent management of the public finances means that it is able to help the economy in the short term.