As coronavirus spreads, market participants are trying to assess whether global central banks will make a concerted effort to stem the damage in their respective economies by leveraging monetary policy tools.
The People’s Bank of China kicked things off in an effort to boost liquidity as Asia stocks plunged on the first trading day after the Lunar New Year.
The outbreak could even force the Federal Reserve to step in and cut interest rates to ease the pain in U.S. markets, said Benn Steil, director of international economics and senior fellow at the Council on Foreign Relations.
Steil doesn’t see the Fed moving immediately — but he’s not writing off another cut for this year.
“I would anticipate, if there are clear signs of a slowdown, that we will indeed see a rate cut sometime in the spring,” the economist said.
China’s economic growth could also be at stake as the virus weighs on Chinese corporate activity. China’s gross domestic product could fall to 5.5% from the 6.1% reported at the end of 2019 if the crisis worsens, Goldman Sachs predicted this week.