The biggest optimism booster is sustained economic output. The Dow, a U.S. stock index, is off more than 500 points even after the Federal Reserve had cut interest rates, reminding us that monetary policy has clear limited impacts. Unless there is a sustained economic output, flavored with higher productivity, monetary tools can lose potency quickly. If factories are closed due to a virus, even near-zero rates, in U.S, will not do much, to bring the animal spirits in markets. So, we need to deal with this virus as nothing else will work!
Stocks went on a wild ride Tuesday after the Federal Reserve slashed interest rates by a half-point to help insulate the US economy from the global coronavirus outbreak.
Wild swings followed the unscheduled announcement until investors made up their minds around midday: The Fed’s rate was bad news for the economy. Stocks were sharply down.The Dow () was down more 700 points, or 2.7%, in the early afternoon. The index was at one point Tuesday rose by nearly 400 points.Although lower interest rates are good for stocks, making borrowing cheaper, the emergency cut also was a signal that the US economy could be in serious trouble because of the virus outbreak.Fed Chairman Jerome Powell stressed in a press conference Tuesday that the US economy remains strong but that the strain on industries like tourism and travel, as well as supply chains, was becoming apparent in sentiment surveys.
Of course while U.S. is cutting rates, my fear is that Nigeria could look at currency devaluation if suddenly global crude oil demand stalls and the nation has local bills to pay; it does have a lot. Oh yes, you can do money doubling: bring in a few dollars and have more Naira to pay your naira-denominated debt obligations. This virus poses severe risks to our economy because it can distort all the business scenarios if exchange rates begin to shift, rapidly.
That is why it is painful that the House of Reps will close plenary for two weeks at a critical period when leadership is needed in Nigeria! If companies, schools, and all, fearful of the virus follow and shut down, the House will not have a nation to legislate over.
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