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| Central Bankers Have Crossed Bright Lines to Aid Economies | Central Bankers Have Crossed Bright Lines to Aid Economies |
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| As global central banks race to rescue their economies from coronavirus devastation, they are crossing red lines and trying out policies they had never before attempted. They’re probably not done yet. | As global central banks race to rescue their economies from coronavirus devastation, they are crossing red lines and trying out policies they had never before attempted. They’re probably not done yet. |
| Faced with a crisis unlike any other in memory, central bankers have embarked on new efforts to keep credit flowing and to set the stage for an economic turnaround. Because they went into the crisis with limited ammunition to stoke growth, experimentation may prove even more crucial in the months and years ahead as the world embarks on what could be a long slog back to prosperity. | Faced with a crisis unlike any other in memory, central bankers have embarked on new efforts to keep credit flowing and to set the stage for an economic turnaround. Because they went into the crisis with limited ammunition to stoke growth, experimentation may prove even more crucial in the months and years ahead as the world embarks on what could be a long slog back to prosperity. |
| In the United States, the Federal Reserve is buying municipal debt and corporate bonds and lending to midsize companies — embracing never-before-tried efforts to keep credit markets functioning. The European Central Bank is accepting recently downgraded junk bonds as collateral in return for cheap loans, and the Reserve Bank of Australia is buying government bonds to keep the rate on three-year debt steady at a quarter of a percentage point. | In the United States, the Federal Reserve is buying municipal debt and corporate bonds and lending to midsize companies — embracing never-before-tried efforts to keep credit markets functioning. The European Central Bank is accepting recently downgraded junk bonds as collateral in return for cheap loans, and the Reserve Bank of Australia is buying government bonds to keep the rate on three-year debt steady at a quarter of a percentage point. |
| Those attempts, along with others elsewhere, go beyond what the monetary authorities did even in the darkest days of the 2008 global financial crisis. | Those attempts, along with others elsewhere, go beyond what the monetary authorities did even in the darkest days of the 2008 global financial crisis. |
| The Fed “crossed a lot of red lines that had not been crossed before,” Jerome H. Powell, its chair, said during a recent online appearance. Despite the risk, he added, “this is that situation in which you do that, and you figure it out afterward.” | The Fed “crossed a lot of red lines that had not been crossed before,” Jerome H. Powell, its chair, said during a recent online appearance. Despite the risk, he added, “this is that situation in which you do that, and you figure it out afterward.” |
| Policymakers are going to new lengths in part because there had never been an economic shock like the one caused by the pandemic, in which the world closed up shop simultaneously. The U.S. economy officially tipped into recession in February, the National Bureau of Economic Research declared on Monday. | Policymakers are going to new lengths in part because there had never been an economic shock like the one caused by the pandemic, in which the world closed up shop simultaneously. The U.S. economy officially tipped into recession in February, the National Bureau of Economic Research declared on Monday. |
| Central bankers entered the crisis with low interest rates, leaving them less room to goose growth using their tried-and-true tools. | Central bankers entered the crisis with low interest rates, leaving them less room to goose growth using their tried-and-true tools. |
| Their efforts joined a wave of fiscal policy — moves by elected governments with taxing and spending powers. The United States, Germany, France and many other countries have poured trillions of dollars into their economies through tax cuts, cheap credit and cash handouts. Monetary policy and fiscal policy can act as complements during a crisis to get economies back on track. | Their efforts joined a wave of fiscal policy — moves by elected governments with taxing and spending powers. The United States, Germany, France and many other countries have poured trillions of dollars into their economies through tax cuts, cheap credit and cash handouts. Monetary policy and fiscal policy can act as complements during a crisis to get economies back on track. |
| But appetite for further fiscal action is eroding in some places, including the United States. And the next stage — the recovery — could pose a fresh test for the world’s central banks, forcing them to get more creative as they try to keep pandemic aftershocks from permanently scarring growth potential and to avert economy-damaging price declines. The Fed and its global counterparts are shifting from crisis-fighting mode, when they worked to keep credit markets open, to a period when they must stoke lending and spending to get economies churning again. | But appetite for further fiscal action is eroding in some places, including the United States. And the next stage — the recovery — could pose a fresh test for the world’s central banks, forcing them to get more creative as they try to keep pandemic aftershocks from permanently scarring growth potential and to avert economy-damaging price declines. The Fed and its global counterparts are shifting from crisis-fighting mode, when they worked to keep credit markets open, to a period when they must stoke lending and spending to get economies churning again. |
| Central banks have historically cut interest rates to lift the economy during and after shocks, but borrowing was so cheap going into this sharp downturn that they will need to turn to unconventional approaches. Some are already experimenting with new approaches to stimulate demand — the Bank of Japan has intensified its efforts to stabilize markets through stock fund purchases, and the European Central Bank has a pandemic-related bond-buying plan in place — while others are likely to get creative before long. | Central banks have historically cut interest rates to lift the economy during and after shocks, but borrowing was so cheap going into this sharp downturn that they will need to turn to unconventional approaches. Some are already experimenting with new approaches to stimulate demand — the Bank of Japan has intensified its efforts to stabilize markets through stock fund purchases, and the European Central Bank has a pandemic-related bond-buying plan in place — while others are likely to get creative before long. |
| “It will be a potential concern as the economy turns around, if that turnaround is less than ideal,” said Donald Kohn, a former Fed vice chairman now at the Brookings Institution. “Central banks will have to work hard at supplying the extra push, the extra zip that they’d want to achieve.” | “It will be a potential concern as the economy turns around, if that turnaround is less than ideal,” said Donald Kohn, a former Fed vice chairman now at the Brookings Institution. “Central banks will have to work hard at supplying the extra push, the extra zip that they’d want to achieve.” |
| At its meeting on Thursday, the European Central Bank said it would nearly double a de facto money printing program to 1.35 trillion euros, or $1.5 trillion, to ensure a steady flow of cheap credit to eurozone consumers and businesses. The bank was already allowing commercial banks to borrow money at a negative interest rate of 1 percent if they lend the funds to customers. In effect, the central bank is paying commercial banks to hand out loans. | At its meeting on Thursday, the European Central Bank said it would nearly double a de facto money printing program to 1.35 trillion euros, or $1.5 trillion, to ensure a steady flow of cheap credit to eurozone consumers and businesses. The bank was already allowing commercial banks to borrow money at a negative interest rate of 1 percent if they lend the funds to customers. In effect, the central bank is paying commercial banks to hand out loans. |
| The Fed, which meets in Washington this week, is expected to use so-called forward guidance — a pledge to leave interest rates near rock bottom for an extended time — to manage investors’ rate expectations and stimulate the economy. Most economists expect it to continue buying bonds, pushing its balance sheet to never-before-seen sizes, and some think it could eventually try to explicitly cap market rates on longer-term government debt. | The Fed, which meets in Washington this week, is expected to use so-called forward guidance — a pledge to leave interest rates near rock bottom for an extended time — to manage investors’ rate expectations and stimulate the economy. Most economists expect it to continue buying bonds, pushing its balance sheet to never-before-seen sizes, and some think it could eventually try to explicitly cap market rates on longer-term government debt. |
| Some analysts warn there is a danger that central banks and elected officials will overshoot in their rush to prop up their economies. According to that logic, they are flooding the world with cash at the same time that restaurants, airlines and retailers are being driven out of business. That will create an imbalance between demand and supply that will lead to higher prices, argues Oliver Harvey, a macroeconomic strategist at Deutsche Bank. | Some analysts warn there is a danger that central banks and elected officials will overshoot in their rush to prop up their economies. According to that logic, they are flooding the world with cash at the same time that restaurants, airlines and retailers are being driven out of business. That will create an imbalance between demand and supply that will lead to higher prices, argues Oliver Harvey, a macroeconomic strategist at Deutsche Bank. |
| “The government is handing out $100 bills when there is nowhere open to spend them,” Mr. Harvey wrote in a recent article. He pointed out that food prices were already rising sharply in Britain, which he attributed to “more money chasing after significantly fewer goods and services.” | “The government is handing out $100 bills when there is nowhere open to spend them,” Mr. Harvey wrote in a recent article. He pointed out that food prices were already rising sharply in Britain, which he attributed to “more money chasing after significantly fewer goods and services.” |
| But the prevailing view among economists is that central bankers have no alternative, and some ask the opposite question: Will the extraordinary efforts by central banks to stoke demand even be enough to quickly restore low unemployment and encourage stable inflation? | But the prevailing view among economists is that central bankers have no alternative, and some ask the opposite question: Will the extraordinary efforts by central banks to stoke demand even be enough to quickly restore low unemployment and encourage stable inflation? |
| Updated June 22, 2020 | |
| A commentary published this month on the website of the British Journal of Sports Medicine points out that covering your face during exercise “comes with issues of potential breathing restriction and discomfort” and requires “balancing benefits versus possible adverse events.” Masks do alter exercise, says Cedric X. Bryant, the president and chief science officer of the American Council on Exercise, a nonprofit organization that funds exercise research and certifies fitness professionals. “In my personal experience,” he says, “heart rates are higher at the same relative intensity when you wear a mask.” Some people also could experience lightheadedness during familiar workouts while masked, says Len Kravitz, a professor of exercise science at the University of New Mexico. | |
| The steroid, dexamethasone, is the first treatment shown to reduce mortality in severely ill patients, according to scientists in Britain. The drug appears to reduce inflammation caused by the immune system, protecting the tissues. In the study, dexamethasone reduced deaths of patients on ventilators by one-third, and deaths of patients on oxygen by one-fifth. | The steroid, dexamethasone, is the first treatment shown to reduce mortality in severely ill patients, according to scientists in Britain. The drug appears to reduce inflammation caused by the immune system, protecting the tissues. In the study, dexamethasone reduced deaths of patients on ventilators by one-third, and deaths of patients on oxygen by one-fifth. |
| The coronavirus emergency relief package gives many American workers paid leave if they need to take time off because of the virus. It gives qualified workers two weeks of paid sick leave if they are ill, quarantined or seeking diagnosis or preventive care for coronavirus, or if they are caring for sick family members. It gives 12 weeks of paid leave to people caring for children whose schools are closed or whose child care provider is unavailable because of the coronavirus. It is the first time the United States has had widespread federally mandated paid leave, and includes people who don’t typically get such benefits, like part-time and gig economy workers. But the measure excludes at least half of private-sector workers, including those at the country’s largest employers, and gives small employers significant leeway to deny leave. | The coronavirus emergency relief package gives many American workers paid leave if they need to take time off because of the virus. It gives qualified workers two weeks of paid sick leave if they are ill, quarantined or seeking diagnosis or preventive care for coronavirus, or if they are caring for sick family members. It gives 12 weeks of paid leave to people caring for children whose schools are closed or whose child care provider is unavailable because of the coronavirus. It is the first time the United States has had widespread federally mandated paid leave, and includes people who don’t typically get such benefits, like part-time and gig economy workers. But the measure excludes at least half of private-sector workers, including those at the country’s largest employers, and gives small employers significant leeway to deny leave. |
| So far, the evidence seems to show it does. A widely cited paper published in April suggests that people are most infectious about two days before the onset of coronavirus symptoms and estimated that 44 percent of new infections were a result of transmission from people who were not yet showing symptoms. Recently, a top expert at the World Health Organization stated that transmission of the coronavirus by people who did not have symptoms was “very rare,” but she later walked back that statement. | So far, the evidence seems to show it does. A widely cited paper published in April suggests that people are most infectious about two days before the onset of coronavirus symptoms and estimated that 44 percent of new infections were a result of transmission from people who were not yet showing symptoms. Recently, a top expert at the World Health Organization stated that transmission of the coronavirus by people who did not have symptoms was “very rare,” but she later walked back that statement. |
| Touching contaminated objects and then infecting ourselves with the germs is not typically how the virus spreads. But it can happen. A number of studies of flu, rhinovirus, coronavirus and other microbes have shown that respiratory illnesses, including the new coronavirus, can spread by touching contaminated surfaces, particularly in places like day care centers, offices and hospitals. But a long chain of events has to happen for the disease to spread that way. The best way to protect yourself from coronavirus — whether it’s surface transmission or close human contact — is still social distancing, washing your hands, not touching your face and wearing masks. | Touching contaminated objects and then infecting ourselves with the germs is not typically how the virus spreads. But it can happen. A number of studies of flu, rhinovirus, coronavirus and other microbes have shown that respiratory illnesses, including the new coronavirus, can spread by touching contaminated surfaces, particularly in places like day care centers, offices and hospitals. But a long chain of events has to happen for the disease to spread that way. The best way to protect yourself from coronavirus — whether it’s surface transmission or close human contact — is still social distancing, washing your hands, not touching your face and wearing masks. |
| A study by European scientists is the first to document a strong statistical link between genetic variations and Covid-19, the illness caused by the coronavirus. Having Type A blood was linked to a 50 percent increase in the likelihood that a patient would need to get oxygen or to go on a ventilator, according to the new study. | A study by European scientists is the first to document a strong statistical link between genetic variations and Covid-19, the illness caused by the coronavirus. Having Type A blood was linked to a 50 percent increase in the likelihood that a patient would need to get oxygen or to go on a ventilator, according to the new study. |
| The unemployment rate fell to 13.3 percent in May, the Labor Department said on June 5, an unexpected improvement in the nation’s job market as hiring rebounded faster than economists expected. Economists had forecast the unemployment rate to increase to as much as 20 percent, after it hit 14.7 percent in April, which was the highest since the government began keeping official statistics after World War II. But the unemployment rate dipped instead, with employers adding 2.5 million jobs, after more than 20 million jobs were lost in April. | The unemployment rate fell to 13.3 percent in May, the Labor Department said on June 5, an unexpected improvement in the nation’s job market as hiring rebounded faster than economists expected. Economists had forecast the unemployment rate to increase to as much as 20 percent, after it hit 14.7 percent in April, which was the highest since the government began keeping official statistics after World War II. But the unemployment rate dipped instead, with employers adding 2.5 million jobs, after more than 20 million jobs were lost in April. |
| States are reopening bit by bit. This means that more public spaces are available for use and more and more businesses are being allowed to open again. The federal government is largely leaving the decision up to states, and some state leaders are leaving the decision up to local authorities. Even if you aren’t being told to stay at home, it’s still a good idea to limit trips outside and your interaction with other people. | States are reopening bit by bit. This means that more public spaces are available for use and more and more businesses are being allowed to open again. The federal government is largely leaving the decision up to states, and some state leaders are leaving the decision up to local authorities. Even if you aren’t being told to stay at home, it’s still a good idea to limit trips outside and your interaction with other people. |
| Common symptoms include fever, a dry cough, fatigue and difficulty breathing or shortness of breath. Some of these symptoms overlap with those of the flu, making detection difficult, but runny noses and stuffy sinuses are less common. The C.D.C. has also added chills, muscle pain, sore throat, headache and a new loss of the sense of taste or smell as symptoms to look out for. Most people fall ill five to seven days after exposure, but symptoms may appear in as few as two days or as many as 14 days. | Common symptoms include fever, a dry cough, fatigue and difficulty breathing or shortness of breath. Some of these symptoms overlap with those of the flu, making detection difficult, but runny noses and stuffy sinuses are less common. The C.D.C. has also added chills, muscle pain, sore throat, headache and a new loss of the sense of taste or smell as symptoms to look out for. Most people fall ill five to seven days after exposure, but symptoms may appear in as few as two days or as many as 14 days. |
| If air travel is unavoidable, there are some steps you can take to protect yourself. Most important: Wash your hands often, and stop touching your face. If possible, choose a window seat. A study from Emory University found that during flu season, the safest place to sit on a plane is by a window, as people sitting in window seats had less contact with potentially sick people. Disinfect hard surfaces. When you get to your seat and your hands are clean, use disinfecting wipes to clean the hard surfaces at your seat like the head and arm rest, the seatbelt buckle, the remote, screen, seat back pocket and the tray table. If the seat is hard and nonporous or leather or pleather, you can wipe that down, too. (Using wipes on upholstered seats could lead to a wet seat and spreading of germs rather than killing them.) | If air travel is unavoidable, there are some steps you can take to protect yourself. Most important: Wash your hands often, and stop touching your face. If possible, choose a window seat. A study from Emory University found that during flu season, the safest place to sit on a plane is by a window, as people sitting in window seats had less contact with potentially sick people. Disinfect hard surfaces. When you get to your seat and your hands are clean, use disinfecting wipes to clean the hard surfaces at your seat like the head and arm rest, the seatbelt buckle, the remote, screen, seat back pocket and the tray table. If the seat is hard and nonporous or leather or pleather, you can wipe that down, too. (Using wipes on upholstered seats could lead to a wet seat and spreading of germs rather than killing them.) |
| If you’ve been exposed to the coronavirus or think you have, and have a fever or symptoms like a cough or difficulty breathing, call a doctor. They should give you advice on whether you should be tested, how to get tested, and how to seek medical treatment without potentially infecting or exposing others. | If you’ve been exposed to the coronavirus or think you have, and have a fever or symptoms like a cough or difficulty breathing, call a doctor. They should give you advice on whether you should be tested, how to get tested, and how to seek medical treatment without potentially infecting or exposing others. |
| If you’re sick and you think you’ve been exposed to the new coronavirus, the C.D.C. recommends that you call your healthcare provider and explain your symptoms and fears. They will decide if you need to be tested. Keep in mind that there’s a chance — because of a lack of testing kits or because you’re asymptomatic, for instance — you won’t be able to get tested. | If you’re sick and you think you’ve been exposed to the new coronavirus, the C.D.C. recommends that you call your healthcare provider and explain your symptoms and fears. They will decide if you need to be tested. Keep in mind that there’s a chance — because of a lack of testing kits or because you’re asymptomatic, for instance — you won’t be able to get tested. |
| “Under current circumstances, when the world came to a full stop in a month, there is no such thing as doing too much,” said Carl Weinberg, chief economist at High Frequency Economics a research firm. “If there is inflation, that is a small price to pay. The big social-political-economic problem is the loss of jobs and income.” | |
| Growth could recover steadily as businesses reopen and consumers begin to spend government stimulus checks and savings built up during the shutdowns. Unemployment in the United States fell to 13.3 percent in May, suggesting that the early stage of that rebound is already underway. But a more pessimistic reality also looks possible. | Growth could recover steadily as businesses reopen and consumers begin to spend government stimulus checks and savings built up during the shutdowns. Unemployment in the United States fell to 13.3 percent in May, suggesting that the early stage of that rebound is already underway. But a more pessimistic reality also looks possible. |
| The economy could take years to get back to full strength as consumers and businesses brace for a second wave of infections, companies cut investment, and restaurants and retailers find that they cannot make money at partial capacity. In that world, central banks may be needed to nudge businesses to make their next machinery investment, or to encourage consumers to opt for the more expensive car. | The economy could take years to get back to full strength as consumers and businesses brace for a second wave of infections, companies cut investment, and restaurants and retailers find that they cannot make money at partial capacity. In that world, central banks may be needed to nudge businesses to make their next machinery investment, or to encourage consumers to opt for the more expensive car. |
| Rock-bottom interest rates should help. But rates have been low for most of the last decade, so cheap borrowing costs may not offer the economic booster shot that they once did. The Fed slashed interest rates in March to near zero from a range of just 1.5 to 1.75 percent, less than half the pre-2008 starting point. In Europe and Japan, rates were already negative going into the crisis. | Rock-bottom interest rates should help. But rates have been low for most of the last decade, so cheap borrowing costs may not offer the economic booster shot that they once did. The Fed slashed interest rates in March to near zero from a range of just 1.5 to 1.75 percent, less than half the pre-2008 starting point. In Europe and Japan, rates were already negative going into the crisis. |
| While officials around the world have shown a willingness to buy bonds — exploding their balance sheets from already historically large levels — those policies might also prove less potent in 2020. When the Fed started its financial crisis bond purchases, aiming to push down longer-term rates, the interest rate on 10-year government bonds stood above 3 percent. Today, rates are around 0.8 percent, leaving far less room to lower them. | While officials around the world have shown a willingness to buy bonds — exploding their balance sheets from already historically large levels — those policies might also prove less potent in 2020. When the Fed started its financial crisis bond purchases, aiming to push down longer-term rates, the interest rate on 10-year government bonds stood above 3 percent. Today, rates are around 0.8 percent, leaving far less room to lower them. |
| And while some economists worry about higher inflation, most warn that the opposite problem could be true: Inflation in advanced economies has been low for a decade or more, and the pandemic’s hit to demand could worsen that problem. | And while some economists worry about higher inflation, most warn that the opposite problem could be true: Inflation in advanced economies has been low for a decade or more, and the pandemic’s hit to demand could worsen that problem. |
| While that might sound like good news, the danger is that weak inflation leaves even less headroom to cut interest rates, which count it in. And it might increase the risk that prices could spiral downward into outright declines. Deflation could leave consumers holding off on purchases today because they know goods will be cheaper tomorrow. | While that might sound like good news, the danger is that weak inflation leaves even less headroom to cut interest rates, which count it in. And it might increase the risk that prices could spiral downward into outright declines. Deflation could leave consumers holding off on purchases today because they know goods will be cheaper tomorrow. |
| Given the urgency of avoiding that outcome, some economists think central banks could push their boundaries even further in the years ahead to bring back demand. | Given the urgency of avoiding that outcome, some economists think central banks could push their boundaries even further in the years ahead to bring back demand. |
| If the U.S. economy takes a turn for the worse, the Fed could loosen the terms on the various credit facilities it has rolled out to make them more attractive to borrowers, said Julia Coronado, founder of the research firm MacroPolicy Perspectives. While those emergency lending programs are not meant to work as stimulus — they are intended to keep markets from choking up — the Fed could use them to encourage borrowing and spending in especially bad times. | If the U.S. economy takes a turn for the worse, the Fed could loosen the terms on the various credit facilities it has rolled out to make them more attractive to borrowers, said Julia Coronado, founder of the research firm MacroPolicy Perspectives. While those emergency lending programs are not meant to work as stimulus — they are intended to keep markets from choking up — the Fed could use them to encourage borrowing and spending in especially bad times. |
| “The line is not that bright red anymore,” she said. | “The line is not that bright red anymore,” she said. |
| If economies around the world simply heal weakly, lingering below potential without tipping into outright crisis, there are real questions about what central banks will do to speed things up. It may fall to fiscal policy to provide further support. | If economies around the world simply heal weakly, lingering below potential without tipping into outright crisis, there are real questions about what central banks will do to speed things up. It may fall to fiscal policy to provide further support. |
| “They can’t ease too much more,” said Joseph Gagnon, a senior fellow at the Peterson Institute for International Economics. “They’re seeing the limits.” | “They can’t ease too much more,” said Joseph Gagnon, a senior fellow at the Peterson Institute for International Economics. “They’re seeing the limits.” |