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This policy can pose a distortion of the interest rate for market and may eventually overwhelm the stock market. Researchers at Anbound believe that actually Federal Reserve is at a key point of choice and they believe that limiting yields on short-term and medium-term bonds may be an effective way to expand the toolbox. The purpose is to reduce the cost of borrowing and to promote more borrowing, which can devalue the US dollar and thus reduce the debt burden relatively. This process means that a major adjustment may be forthcoming. Federal Reserve Chairman Jerome Powell said on February 28 that the Fed is closely monitoring the developments and its impact on the economic outlook and will use its own \u201ctools\u201d and take appropriate action to support the economy. This led investors to expect the Fed to start cutting interest rates again in March to restore the normal yield curve.<\/p>\n
Judging from the current situation, the spread of the COVID-19 pandemic will inevitably affect the global economy. Moody’s believes that if the novel coronavirus epidemic develops into a pandemic, it may cause the United States and the global economy to fall into recession in the first half of 2020 and its probability of developing into a pandemic has increased from 20% to 40%. PNC Financial Services Group predicts that the US economy may slow down to 1.2% in the first half of this year. Although the US economy is likely to rebound later this year, the outlook is not clear. Considering the high degree of uncertainty in the spread of the epidemic, economic losses may be much greater than currently expected. Bank of America economists warned that the global economy will grow by 2.8% this year; the lowest level since 2009.<\/p>\n
Anbound believes that changes in the global economy depend on the development of the pandemic. This will impact demand and supply. Short-term demand will be suppressed. At the same time, the epidemic will disrupt global supply chain and cause short-term supply problems. This could bring about crisis for the global enterprises. Unlike the financial crisis of 2008, it was an internal collapse of the financial market followed by its proliferation that affected the global economy. In the case of COVID-19, the pandemic has impacted the entire supply chain and the global economic system from the outside. Once the economy is severely affected, it will bring more serious consequences.<\/p>\n
In this case, the market generally expects the Federal Reserve and other major central banks to adopt further monetary easing policies to deal with the impact of the epidemic crisis. Then, its impact on the economy will be short-term and temporary. Only after the epidemic is under control, production and consumption will gradually recover. However, many analysts also mentioned that interest rate cuts are not a panacea to deal with the impact of the epidemic. At present, the global economy is closely connected and the industrial chain is distributed across different countries. The impact of the epidemic on the economy is more reflected in the supply area than in the demand area. Therefore, it is more important to ensure the smooth flow of supply and global trade cycles. It is particularly vigilant that if the United States and other major countries adopt more drastic prevention and control measures and trade protectionism policies, it will cause restructuring of global supply chains and market fragmentation in various countries. Under such circumstance, the impact of the COVID-19 pandemic on the global economy will be catastrophic and may cause fluctuations in global trade, financial markets and the real economy.<\/p>\n
In conclusion, the outbreak of the virus has triggered a sharp adjustment in the global capital market and the turbulence in the capital market will hold back the global economy. Changes in the pandemic and policy uncertainty will have a lasting impact on various countries\u2019 economies. If prevention and control measures and macro policies are further intensified, this will lead to continuous turbulence and restructuring of the global economy.<\/p>\n
This analysis is from Anbound, a China-based think tank. Founder and chief researcher Chan Kung worked with Wei Hongxu, who holds a PhD in Economics.<\/p>\n
<\/p>\n","protected":false},"excerpt":{"rendered":"
Affected by the spread of the Novel Coronavirus (COVID-19), stock markets in various countries ushered in a slump across the board, which was comparable to the global financial crisis in 2008. From February 24 to 29, statistics show that, of the major indexes in 133 countries or regions worldwide, 115 fell more than five percent, […]<\/p>\n","protected":false},"author":3,"featured_media":3969,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_mi_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"_FSMCFIC_featured_image_caption":"","_FSMCFIC_featured_image_nocaption":null,"_FSMCFIC_featured_image_hide":null,"footnotes":""},"categories":[3],"tags":[786,800],"yoast_head":"\n