Jack Ewing and Jeanna Smialek
c.2020 The New York Times Company
Central bankers and political leaders of the United States and other economic powers expressed their resolve to combat economic damage from the coronavirus Tuesday but stopped short of promising interest rate cuts or other immediate rescue measures.
The joint statement of solidarity from the leaders of the Group of 7 nations, which also consists of Britain, Canada, France, Germany, Italy and Japan, was intended to show global coordination and cooperation. But it fell short of the more aggressive action that investors have been hoping for and that many economists say could help to prevent the virus outbreak from undermining global growth.
Global finance ministers and central bankers said they “are closely monitoring the spread of the coronavirus disease” and that “given the potential impacts” of the virus on global growth, “we reaffirm our commitment to use all appropriate policy tools to achieve strong, sustainable growth and safeguard against downside risks.”
Officials promised no concrete plans, only a commitment to use their taxing and spending authorities “where appropriate” to help mitigate any economic impact.
“Alongside strengthening efforts to expand health services, G-7 finance ministers are ready to take actions, including fiscal measures where appropriate, to aid in the response to the virus and support the economy during this phase,” the statement said.
Global policymakers added that “central banks will continue to fulfill their mandates, thus supporting price stability and economic growth while maintaining the resilience of the financial system.”
That pledge falls far short of the coordinated global rate cut that investors had been anticipating from the world’s largest economies.
Stock markets in Asia and Europe rose earlier Tuesday before the announcement, but European indexes lost some of those gains after it. Futures on Wall Street pointed to a downbeat start of trading in the United States.
“It was all a nothing-burger,” said Seth Carpenter, an economist at UBS and a former top researcher at the Fed Board. “It’s the ‘where appropriate’ that makes you go — OK, it’s more rhetoric than content.
“The market got very bulled up on the idea of something happening today before markets opened,” he added.
The mere fact that the G-7 held an emergency gathering underlines what a fraught moment this is for the world’s economy. The coronavirus outbreak has torn across the globe, sickening about 90,000 people. While the vast majority of those are still in China, where the infections first surfaced, major outbreaks have also taken hold in South Korea, Japan, Iran and Italy, and cases are climbing in other countries. Six deaths have been reported in the United States.
The virus could exact a heavy economic toll in the G-7 countries, as it leads to quarantines, shutters factories, and hits investor and consumer confidence. But central bankers have limited ability to act because borrowing costs are already low across major economies.
While the Federal Reserve still has leeway to cut interest rates, the European Central Bank and Bank of Japan have spent the last decade struggling to lift inflation and growth, all but exhausting their monetary policy weapons. They will probably prefer to husband their resources until the extent of the economic damage becomes clearer.
That has not prevented markets from looking to central banks for a first-line response. Australia’s central bank cut its main policy rate to 0.5% Tuesday, a record low, and Malaysia cut rates for the second time this year. Investors anticipate rate cuts as early as this month from the European Central Bank, Bank of England and Federal Reserve, based on money market pricing.
“It is too early to tell how persistent the effects of the coronavirus will be and at what point the global economy will return to an improving path,” Philip Lowe, Australia’s central bank governor, said in a statement.
Political leaders in hard-hit countries such as Italy have been promising relief to businesses whose sales have collapsed because people are staying home and factories are closed. But governments in countries like Germany have been reluctant to increase spending, which would mean taking on more debt.
Expectations for a rate cut by the Fed have grown in recent days, with investors now pricing in a 50-basis-point cut in March. The Fed chair, Jerome H. Powell, on Friday signaled the Fed was ready to act as appropriate but stopped short of promising action.
President Donald Trump has continued to pressure Powell to cut rates, saying the central bank is putting the United States at a disadvantage to other countries with lower borrowing costs. He did so again Tuesday morning, saying in a tweet that Powell, “has called it wrong from day one. Sad!”