As stock markets tumble because of coronavirus, this time feels different
Traditional methods for arresting an investor panic might be no match for fallout from global pandemic
By David J. Lynch
The coronavirus panic that sent stock markets tumbling this week has triggered calls for the federal government to intervene, relying on traditional playbooks that the Federal Reserve, Congress and the White House have used in numerous previous crises.
This time, though, the usual approach might not work.
Typically, the Fed responds to economic trouble by lowering interest rates to make credit easier to obtain. It also can offer loans to banks via the “discount window” or buy large quantities of U.S. Treasury securities to offset any general tightening in financial conditions. Congress, meanwhile, can approve new spending or tax cuts to flood the economy with money.
But the best remedy for the coronavirus — which has sickened more than 83,000 people worldwide and killed nearly 3,000 — could lie beyond Washington’s immediate powers.
“Central banks don’t make vaccines,” said David Kotok, chairman of Cumberland Advisors.
The stock market plunged again on Friday, with the Dow Jones Industrial Average sinking an additional 1,000 points or nearly 4 percent on top of its week-long decline.
The renewed selling intensified calls for the Fed to rescue the economy from an unforeseen shock.
Read the full article at The Washington Post.
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Cumberland Advisors Market Commentaries offer insights and analysis on upcoming, important economic issues that potentially impact global financial markets. Our team shares their thinking on global economic developments, market news and other factors that often influence investment opportunities and strategies.