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Why Trump is behind the curve on coronavirus: Morning Brief

Myles Udland
Markets Reporter

Tuesday, March 10, 2020

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‘The spring of 2020 is not going to be pleasant’

Financial market stress that has been building for weeks reached a new fever pitch on Monday.

The stock market was halted Monday morning after the S&P 500 dropped 7% in the opening minutes of Monday’s session, triggering a market-wide circuit breaker that resulted in a 15-minute pause in trading. The last market-wide circuit breaker was triggered in December 2008 during the depths of the financial crisis.

And so as confirmed cases of COVID-19 continue to rise and measures are taken to limit travel, commuting, and the economic status quo fails to hold, the outlook for the global economy continues to darken.

Financial markets have adopted a crisis posture, leaving strategists and economists now braced for a downturn and potential recession in the first half of the year.

“We have not been bearish on the economy in years (maybe mid-2012), but it is hard to be bullish right now: the spring of 2020 is not going to be pleasant,” said Neil Dutta at Renaissance Macro in a note to clients published Monday.

“The economy appears [to be] hitting a dead-spot in March as the coronavirus spreads and as social distancing and self-quarantine measures take hold,” Dutta writes. “This will cascade across the services economy and weigh on economic activity — how long remains to be seen.”

This “dead-spot” has pressed the Federal Reserve into action, with the central bank cutting interest rates by 50 basis points last Tuesday. Rates markets now assign a greater than 60% chance that the Fed cuts rates by 100 basis points at its meeting next week, according to data from the CME Group.

The Trump administration, however, has been more cautious than the Fed in its initial response to the COVID-19 outbreak. Last week, the White House passed an $8.3 billion spending package last week, though the president continued on Monday to downplay the severity of the coronavirus outbreak.

Trump in a tweet blamed Saudi Arabia, Russia, and the “Fake News” for Monday’s drop in the market, and in a separate tweet said “nothing is shut down” while comparing the coronavirus to the common flu. Last week, the World Health Organization said COVID-19 is a “more severe disease” than the seasonal flu, and warnings from U.S. officials have been repeatedly contradicted by Trump.

“Trump, not Powell, is behind the curve,” Dutta writes.

U.S. President Donald Trump walks toward the Oval Office after exiting Marine One on the South Lawn of the White House March 9, 2020 in Washington, DC. (Photo by Drew Angerer/Getty Images)

“The fiscal response has been [disappointing],” Dutta adds. “While the President recently signed an $8.3 billion emergency spending package, testing for the virus has been lagging...Treat this like a natural disaster.”

And indeed, the Fed’s reaction to coronavirus has underscored for many economists the need for a bigger fiscal response from the government. Whether lawmakers will grow more aggressive in throwing money at economic and health care impacts from the virus remains to be seen.

“Events in the past week have underscored the limits of monetary policy in addressing the crisis,” said Ethan Harris, an economist at Bank of America Global Research.

“The bottom line is that investors should not be counting on central banks to save us from the virus shock,” Harris added. “In this crisis, central banks are the last line of defense after health care policy and fiscal policy. Indeed, the Fed's ‘emergency cut’ may have done more harm than good.”

By Myles Udland, reporter and co-anchor of The Final Round. Follow him at @MylesUdland

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