Tuesday, March 3, 2020

Major Central Banks Appear Ready to Cut Interest Rates

BOJ Governor Haruhiko Kuroda,  ECB President Christine Lagarde and  Federal Reserve Chairman Jerome Powell

The heads of the European Central Bank and Bank of Japan issued emergency statements on Monday that echoed one from U.S. Federal Reserve Chairman Jerome Powell late last week.

 BOJ Governor Haruhiko Kuroda pledging to take actions as needed to stabilize markets jolted by the coronavirus outbreak, and ECB President Christine Lagarde followed suit late in the day with a comparable statement. Powell on Friday promised the Fed would "act as appropriate" to support the U.S. economy.

"We stand ready to take appropriate and targeted measures, as necessary and commensurate with the underlying risks," Lagarde said in a statement issued shortly after U.S. stock markets closed. "The coronavirus outbreak is a fast developing situation, which creates risks for the economic outlook and the functioning of financial markets."

According to Reuters, Powell, Kuroda and Lagarde will also join finance ministers and other central bankers from the world's seven largest economies on a call on Tuesday to discuss the widening crisis.

"The news of tomorrow's G-7 finance minister and central banker call to discuss a coordinated response clearly increases the potential that the Fed could move this week," JPMorgan's chief U.S. economist Michael Feroli said in a note.

It is always counter-productive for central banks to manipulate interest rates. The manipulation is at the epicenter of the boom-bust business cycle but to think interest rate manipulation is a way to battle the economic consequences of a virus is an entirely new level of madness.

As I wrote on Monday in the EPJ Daily Alert, it will accomplish nothing but put additional upward pressure on prices.



  1. Oh no!---"risks for the economic outlook and the functioning of financial markets"---! Can't have that! Risks might spook investors! Bring on the moral hazard!

  2. "Never let a crisis go to waste." The only purpose for central banks is to provide new money "out of thin air" for their government and bureaucracies. The cost will of course fall on their citizens as the rate of inflation increases and purchasing power drops. But government officials will be able to maintain the life style they've grown accustom to. The coronavirus is just another excuse to steal from everyone.