The rising tide of another pandemic could affect the actions of central banks. New cases of infection have already prompted an extraordinary response from the Reserve Bank of New Zealand. Will the same happen in the US?
Holiday pictures from seaside resorts may delude us into thinking that there is no epidemic left. However, Covid-19 is now making its presence felt in Asia and Oceania, but also in the United States.
New Zealand reacts decisively
The epidemic situation is serious enough to affect monetary policy in individual countries. The flagship example is what the central bank of New Zealand (RBNZ) did, or actually did not do. It was supposed to raise the key interest rate last week and then proceed with a cycle of hikes and normalization of monetary policy. However, after detecting only a few cases of Covid-19 infection, the New Zealand authorities decided to implement a lockdown, and in turn the RBNZ left the main interest rate unchanged, performing a 180-degree turnaround from market expectations.
U.S.: unwanted calculus data grows
New Zealand from the beginning takes decisive steps to protect citizens from the epidemic, where the total number of detected cases since the beginning of the epidemic is only 3 thousand. Such statistics can envy even the United States, where the epidemic situation seems to be worsening day by day. The weekly average of daily cases has risen to 150,000, the highest level since the turn of January and February this year. The number of people hospitalized is also rising sharply, including more than 25,000 in intensive care units, while casualties are the highest since early April. The dramatic events are increasing in scope across the globe and could affect further policy direction by central banks and countries.
Longer with a pandemic, longer with central bank support?
These are not easy decisions, but in the next three days the US Federal Reserve and its Chairman Jerome Powell will have to address them at a symposium of central bankers in Jackson Hole.
Dr. Anthony Fauci, the White House medical advisor, warned that the pandemic will not be under control until spring 2022. Setting the stage for a rapid reduction in stimulus to economies at this point, therefore, may be at high risk of failure, as the world currently may be grappling with the specter of a rapid economic slowdown. U.S. bank Goldman Sachs, however, said in a note yesterday that the Fed is likely to announce the start of tapering bond purchases by $15 billion in November and at subsequent meetings.
Daniel Kostecki, Chief Analyst Conotoxia Ltd.
Materials, analysis and opinions contained, referenced or provided herein are intended solely for informational and educational purposes. Personal opinion of the author does not represent and should not be constructed as a statement or an investment advice made by Conotoxia Ltd. All indiscriminate reliance on illustrative or informational materials may lead to losses. Past performance is not a reliable indicator of future results.
CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 77.31% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
Trade this news from Conotoxia Ltd. platforms
Go to your account
