- The Federal Reserve, saying “the coronavirus outbreak has harmed communities and disrupted economic activity in many countries, including the United States,” cut interest rates to essentially zero on Sunday and launched a massive $700 billion quantitative easing program to shelter the economy from the effects of the virus.
Despite the aggressive move, the market’s initial response was negative. Dow futures pointed to a decline of some 1,000 points at the Wall Street open Monday morning.
My understanding is that bank balance sheets are... fine. This seems preemptory. Furthermore, the problem isn’t a wave of defaults (yet) but broken supply chains, a decrease in the velocity of money, a drop in spending, or a supply side shock.
Matt Yglesias says it’s both a demand and supply side shock, so this may be warranted in his model.