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The Coronavirus Infects Fed Communications
Those waiting on a sign from the Fed that monetary policy stands ready to offset any deleterious economic impact from the coronavirus may take some solace in the monetary policy report released Friday.
A word search turns up only two hits for "virus", but the relevant passages are worth quoting briefly, ahead of Jerome Powell's testimony next week.
After noting that "downside risks to the US outlook seem to have receded in the latter part of [2019]", the Fed notes that "more recently, possible
The Street is wonderful in creating fears and risks, CBs fall into the trap and cut rates + pump liquidity. It’s always a pullback caused by some ad hoc inflated fears, then liquidity comes, and there you are with a rally higher in a few days above the levels of the pullback.
create fear with detailed analyses (the end of the year scarce liquidity, the bad macrodata, the virus…help help!)
FED+PBoC pump liquidity
Here comes the rally
and on and on and on
The best policy is to create fears, never allow CB to remain on hold, always force them to add liquidity. And the party goes on. Buy the dip,and get ready to sell as soon as the next fear created by some analysts come. Go short a couple of days, then buy the dip again.
Always works — except when it doesn’t (2000, 2008). Nothing goes up for ever, CBs be damned.
Also, the suggestion that virus will affect only China is somewhat optimistic. For example, I wonder about Africa – there is no cases because there is no cases or because there is no monitoring? And peoples from there traveling worldwide without restrictions (except for visas, of course).