In December, 2019-nCov broke out in China, the second-largest economy of the world. Now, it’s affecting people everywhere.
2019-nCov is developing rapidly despite efforts against it from China's government and the public. Zhong Nanshan, an academic of the Chinese Academy of Engineering, said in an interview with Reuters on February 11th that the effects of the epidemic are expected to ease. He predicts that the peak of infection will occur in late February and that the outbreak is expected to end by April.
According to Reuters and CNN, the three major U.S. stock indexes all set a record high in the session, with the Dow Jones index rising to 29415.39, the NASDAQ index to 9714.74, and the S & P 500 to 3375.63.
In response, US President Trump congratulated the US stock market on its new high on Twitter, DATE, saying “S&P 500 hits new record high. Up 19% for the year. Congratulations!” . However, the stocks later dipped slightly; Trump blamed Federal Reserve Chairman Jay Powell for the high-interest rate of the Federal Reserve and the strong US dollar against exports, saying “As I predicted, Jay Powell and the Federal Reserve have allowed the Dollar to get so strong, especially relative to ALL other currencies, that our manufacturers are being negatively affected. Fed Rate too high. They are their own worst enemies, they don’t have a clue. Pathetic!”. On February 11th, Powell said that the Federal Reserve is only interested in achieving goals related to 100% employment and price stability, and reiterated that the current interest rate range of 1.50% to 1.75% is appropriate.
Federal Reserve: give priority to the US economy and do not rush to cut interest rates
Facing questions from the US House of Representatives Financial Services Committee on the outbreak of the new coronavirus, Powell said that the outbreak of 2019-nCov will affect the global economy, including China, its neighbors, and trading partners, and is likely to have some impact on the United States, though the Federal Reserve believes it is still too early to judge its true extent.
Powell stresses that the Federal Reserve will carefully monitor the epidemic: “What will be the impact of the epidemic on the U.S. economy? Will the epidemic continue? How influential is the epidemic? The answers to these questions will determine whether the Fed will reassess the economic outlook,” says NAME.
As a colleague of Powell, Neel Kashkari, the governor of the Federal Reserve Bank of Minneapolis, said on February 11 local time that if the impact of the epidemic is enough to hit the US economy, monetary policy will certainly respond, but This response is not aimed at the virus itself, but to support US economic stability until the US public health system is ready.
Obviously, based on giving priority to the impact of the epidemic on the US economy, the Fed is not in a rush to cut interest rates.
As the risk of trade policy uncertainty recedes, Powell says that global growth has tended toward stability, and the U.S. economy has performed well for 11 consecutive years, the longest ever.
He noted that the U.S. labor market is improving and employers are more willing to hire and train people with fewer skills. At the same time, differences between race and ethnic groups in the U.S. labor market as well as the labor force participation rate of individuals in major work years, are still lower than that of most other developed economies.
According to the semi-annual report of the Federal Reserve, the overall inflation rate of the United States based on the personal consumption expenditure price index in 2019 is 1.6%, lower than their 2% target. Powell predicts that the inflation rate would be close to the target value in the next few months, though he also warned the federal government of its growing deficit, which he expects to reach more than $1 trillion by 2020, in part because of Trump's tax cuts. Although Powell affirmed the stimulating effect on the U.S. economy of Trump's tax cuts,, Trump never seemed to affirm the sentiment.
During Powell's testimony in the house of Representatives, Trump tweeted again criticizing the Federal Reserve’s interest rate: “when Powell started his report in Congress this morning, the stock market set a historical record, but when he mentioned that the current interest rate was appropriate, the stock market fell. Germany and other countries have been paid to borrow money (implying a negative interest rate in Europe), but the Fed's interest rate is too high and the dollar is too strong for exports. "
(via @realDonaldTrump on Twitter)
Coincidentally, Kashkari agrees with trump. According to Reuters, he told the town hall in Carlisle Pell, Montana that the current Federal Reserve policy is close to neutral or slightly loose, but it is not loose enough. He believes that the current monetary policy of the Federal Reserve has little impact on the economy.
The next interest rate resolution of the Federal Reserve will be announced on April 30, 2020. Whether the Federal Reserve interest rate raises, lowers, or remains unchanged, it will affect the monetary policies of the world’s central banks.
Central banks pay close attention to the epidemic
It is worth noting that, in addition to the Federal Reserve, the central banks of many countries have also said that they will pay close attention to the impact of the 2019-nCov epidemic on their respective economies, but it is not yet time to make policy adjustments due to the epidemic. In fact, to cope with the growing global uncertainty since 2018, central banks in many countries have already been on track for interest rate cuts.
The Republic of Korea
According to the Yonhap News Agency report on February 12th, the South Korean central bank's governor, Lee Chu-lie, met with South Korean Finance Minister Hong Nam-ki on February 14th to discuss the economic impact of the 2019-nCov epidemic. Earlier, the Bank of Korea announced its January 2020 monetary policy meeting to maintain the benchmark interest rate at 1.25% for the next three months. However, according to the latest reports from JP Morgan Chase and Morgan Stanley, the South Korean central bank may cut interest rates by 25 basis points in February due to changes in their domestic economic situation.
Japan is one of the overseas countries with the most severe outbreak of the 2019-nCov, Wakada Bemasumi, deputy governor of the Bank of Japan, said in February 5th that the Bank of Japan has paid the greatest attention to the impact of the epidemic on Japan's economy, prices and markets. "If the risk is very large, the realization of the 2% inflation target is difficult to achieve, and the Bank of Japan will not hesitate to take additional easing measures."
However, according to the Bank of Japan’s statistics, Japan’s annual core consumer inflation rate reached 0.7% in December last year, far below the 2% target.
A working report released by the International Monetary Fund (IMF) on February 10th also suggested that the Bank of Japan should redefine the 2% target as a long-term plan, thus leaving room for the central bank’s further decision.
According to the South China Morning Post on February 5th, the Singapore Monetary Authority said its policy stance has not changed. If the economy slows down due to the new virus epidemic, there is still room for the nominal effective exchange rate of the new yuan to fluctuate.The next Monetary Authority of Singapore meeting will be held in April as scheduled.
European Central Bank President Christine Lagarde also publicly stated on February 6 that the emergence of the n2019-nCov epidemic has brought new uncertainty to the EU’s economy.
As of today, the European Central Bank has implemented negative interest rates on deposits for up to 8 years and zero benchmark rates for up to 4 years. Lagarde said in response to emerging concerns such as the outbreak, the EU has few options to further strengthen monetary stimulus measures.
Expert: Impact depends on the severity of the outbreak
Regarding the impact of the 2019-nCov epidemic on whether or not the Federal Reserve adjusted interest rates, Luo Zhenxing, Director of the Economic Research Office of the American Research Institute of the Chinese Academy of Social Sciences, told Times Finance on February 12th that if the impact of the epidemic was considered to be large enough, the Federal Reserve would likely take a rate cut of stable economy. He believes that the epidemic will affect the global economy in five aspects, which may be something the Federal Reserve needs to consider. “The epidemic will first affect multinational companies, including US companies in China and Chinese companies listed in the US, such as Apple, Tesla, and Alibaba,” then it may also have a negative impact on global trade. With the widespread concern caused by the epidemic, some countries have restricted personnel and trade with China. According to Luo Zhenxing, this status quo has increased the cost of trade. In response, Shao Yu, Chief Economist of Orient Securities, also told Times Finance that, due to the restrictions on the United States’ commercial relations with China, some corresponding investment and business negotiations may also require a certain grace period.
Thirdly, many clusters of finely divided production enterprises are located in China; these enterprises are an important part of the global supply chain. Luo Zhenxing pointed out that although many companies in China have required that their employees work from home, local governments may have different progress in the resumption of work based on the local situation, which will bring some to the global industry chain some risk of uncertainty.
Luo Zhenxing also said that the epidemic may affect the implementation of the first phase of Trump’s China-US trade agreement. “In the course of fighting the epidemic, the Chinese government has changed its financial resource allocation, and the needs of society and enterprises after the resumption of work will also change. This may need to be considered by the United States.”
Shao Yu agrees. Due to insufficient resumption rates in many industries, the originally envisaged purchase volume may be difficult to achieve.
The epidemic is likely to affect the global division of labor. According to Luo Zhenxing's analysis, the epidemic situation in China will have a more direct impact on global enterprises because China takes a large share of the global division of labor. In this case, there may be companies to reconsider the geographical A balanced layout to share risks: “Therefore, the effectiveness of epidemic prevention and control is extremely important to China.”
Fortunately, the epidemic situation is being controlled due to China’s efforts. With the deepening knowledge of 2019-nCov and the accumulation of experience in diagnosis and treatment, in response to the characteristics of the epidemic in Hubei Province, the General Office of the National Health and Health Commission of China, the “Diagnosis and Treatment Scheme for New Coronavirus Infected Pneumonia (Trial Fifth Edition)” was issued by the Office of the State Administration of Traditional Chinese Medicine has added clinical diagnosis to the case diagnosis classification in Hubei Province so that patients can receive standardized treatment as soon as possible. The new statistical standards will be applicable nationwide and strive to cover as many confirmed cases as possible.
State Council spokesman Mi Feng announced on the afternoon of February 13th, until February 12th that 31 provinces and the Xinjiang Production and Construction Corps reported a total of 15,152 newly diagnosed cases (13332 cases were diagnosed in Hubei). 174 cases were severe cases, 254 cases were newly added (242 cases in Hubei), 2807 cases were suspected, 1171 cases were cured, and 29,429 close contacts were lifted from medical observation.
As of 24:00 on February 12, there were 52,526 confirmed cases, 80,30 severe cases, 5,911 discharged cases, and 1,367 death cases, accumulatively. 59,804 confirmed cases were reported and 13,485 were suspected cases. A total of 471,531 close contacts were traced, and 181,386 close contacts were still in medical observation.
The new statistical standards have brought about a substantial increase in confirmed cases. On February 11th, WHO Director-General Tan Desai reminded the world that the virus must be regarded as the number one public enemy: “Development Vaccines and therapies take time, and the first vaccine may not be available until 18 months.”
The Chinese government has already taken a series of actions to face the virus and to eliminate the loss caused by it. What we could do now is just to wait patiently during this special time and believe that everything will gradually go back to normal.
Cathy Zhang. Cathy is the Web Master of The Weekly Cad.