Desperate Trump Can’t Stop the Coronavirus Recession

President Donald Trump won't be able to stop the coronavirus recession because the market has begun to ignore his harebrained stimulus schemes.
Posted in: MarketsOp-ed
March 11, 2020 3:56 PM UTC
  • U.S. stocks resumed their plunge Wednesday as the coronavirus caseload leaps above 1,000 in the United States. Hot spots are developing in Washington, New York and California.
  • The U.S. is now the eighth hardest-hit country in the world – just under Germany, Spain and France.
  • As the situation spirals out of control, many fear that a global recession could be on the way as the coronavirus dampens consumer spending.

The U.S equity markets gave back their Tuesday gains as the coronavirus situation dramatically worsened overnight. American authorities confirmed over 300 additional coronavirus cases bringing the total caseload to 1,010 in the country.

As testing ramps up, many expect the total number of confirmed cases to soar in the coming weeks.

Stocks have been on a roller coaster ride as the Trump administration tries desperately to reassure the markets. The U.S president floated the idea of an outlandish 0% payroll tax rate for the rest of 2020. And many on Wall Street expect the Federal Reserve to cut interest rates to zero.

Desperate Times Call for Desperate Measures

President Donald Trump is pictured at the Conservative Political Action Conference on Feb 29th, an event attended by a coronavirus carrier. | Source: AP Photo/Jose Luis Magana

Trump’s desperate proposal highlights the severity and hopelessness of the situation. It resembles the sort of heavy-handed market intervention one would expect from an authoritarian regime like the Chinese Communist Party or Soviet Russia.

Such a harebrained scheme would balloon the national debt and set a disturbing precedent for the country.

Joe Kalish, the chief global macro strategist at Ned Davis Research, suggests Trump’s proposal could harm America’s solvency. He urges Congress to get involved with a solution to the growing economic crisis.

Kalish states the following in a research note:

We need to see meaningful support for economic activity and credit backstops especially for small businesses, not a targeted approach executed only by the executive branch

He elaborates:

We will likely need congressional involvement. This is a potential solvency problem.

The market is likely tanking because investors recognize the implausibility of Trump’s proposed stimulus and simply aren’t taking it seriously. Wall Street looks to cooler heads at the Federal Reserve for a monetary policy response to the crisis, but it isn’t stopping them from selling equity.

Wall Street Expects the Fed to Cut Interest Rates to Zero

Trump is ramping up pressure on the Federal Reserve to cut interest rates and help him stimulate the economy. This comes a week after the central bank enacted an emergency rate cut to slash rates by 50 basis points.

The new benchmark interest rate range is between 1% and 1.25%. But Trump doesn’t think this is good enough.

Source: Twitter

His unhinged rhetoric suggests he wants to force the Federal Reserve to bring interest rates in line with some economies in Europe and East Asia.

The Fed is supposed to be independent, and it is unorthodox for an American president to exert such overt pressure on the institution. But despite Trump’s distasteful tactics, many on Wall Street agree with him and think the Fed should do more to stimulate the economy in the face of the growing coronavirus crisis.

Interest rate futures are pricing in a 51% probability that interest rates will hit the zero lower bound by April. This is based on fears that coronavirus will cause deflation in the U.S. economy.

Wall Street expects a decision at the FOMC meeting on Mar. 18.

If market activity is anything to go by, investors aren’t taking the proposed stimulus seriously.

Stock markets plunged at the start of trading Wednesday, with the Dow Jones bleeding as much as 1,400 points.

The Dow has been tanking since February. Data by ycharts.

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Last modified: June 24, 2020 1:03 AM UTC

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