What hasn't been done to save the global economy

London (CNN Business)Central banks have unleashed trillions of dollars in stimulus, using their full recession toolkits to fight what could be the worst peacetime downturn in 100 years. Governments have followed suit with trillions of additional dollars. In the face of an uncertain future, what's left for policymakers to do?
It's a question economists and investors are asking with increased urgency, even as the recovery kicks in and stocks continue to rise, thanks in large part to existing levels of policy support.
Central banks, for their part, have fired much of their ammunition, and political leaders are still debating what comes next. But there are options left.
One is negative interest rates, a controversial tactic that has already been employed in Europe and Japan. Chatter is growing about whether the Federal Reserve and the Bank of England could follow suit should the crisis drag on longer than expected, though Bank of England Governor Andrew Bailey has appeared more receptive to the idea than Fed Chair Jerome Powell.
"The need to continue supporting the economy will undoubtedly fuel further discussion about whether negative rates are on the horizon," James Smith, developed markets economist at ING, told clients after the Bank of England's announcement last week that it would expand its bond-buying program but hold its key interest rate at 0.1%.
Negative interest rates charge banks to park their money with the central banks, theoretically encouraging greater lending. But critics note that the policy penalizes savers and banks, and may not do much good at a time when interest rates are already near zero.
Another idea: The Fed could "lower interest rates on loans offered to state and local governments, extend these loans' maturities, and make them more broadly available to cities and counties," Josh Bivens of the Economic Policy Institute, a progressive think tank, wrote in a blog post earlier this month.
More fiscal stimulus is also possible. In fact, many economists and market watchers consider it necessary.
"The Fed can do more at the margins — but its existing tools are too weak to provide the help typical families need," Bivens wrote. "It's up to Congress and the president now."
The White House is reportedly working on a hefty infrastructure package, which Bloomberg reported last week could carry a $1 trillion price tag. But such plans are still very much in flux.
The House of Representatives passed a $3 trillion stimulus bill in May that allocates funding for state and local governments, coronavirus testing and a new round of direct payments to Americans, but Republicans made clear it was dead on arrival in the GOP-controlled Senate.
Watch this space: In a note to clients last week, Goldman Sachs raised its outlook for US economic growth in the second half of the year. However, the investment bank said that if Congress fails to agree on a fourth round of spending, its outlook could be at risk.
Jun 22, 2020 12:24
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