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US inaction causing investor panic

China Daily | Updated: 2020-03-18 07:44

A test tube labelled with the coronavirus is placed on US dollar banknotes, in this illustration taken on March 1, 2020. [Photo/Agencies]

The United States Federal Reserve Board could not wait till its scheduled meeting on Wednesday; it announced on Sunday itself that it would cut its benchmark interest rate by 100 basis points to 0-0.25 percent while launching a new round of quantitative easing, including $500 billion-worth of purchases of government bonds and $200 billion-worth of purchases of agency mortgage-backed securities.

It was the Fed's second unusual and unexpected rate cut this month. Soon after, the three major stock indexes in the US fell drastically, triggering the circuit breaker and deepening market panic.

The Fed's intention is to ensure the stability of the US financial market and to avert a huge financial sector crisis as the overall market liquidity is drying up. But the measures cannot stop the novel coronavirus epidemic or prevent a global economic recession. The three major stock indexes in the US recently underwent deep adjustments following disruption in the global supply chain because of the outbreak. The epidemic has been almost controlled in China, but there has been a large-scale outbreak in Europe and the US. Public panic has increased, with the US government failing to provide enough virus reagent kits and protective equipment.

The four rate cuts over the past year were all influenced by market volatility and political pressure. People now believe the Fed is no longer an agency that dominates market sentiment, but a body guided by the market and politics. After the Fed lowers the level of interest rates to zero, it would lack basic means and space to guide the market.

The root cause of the US market crisis is not the outbreak. It is the US government's inaction in the face of the outbreak that has worsened the situation and caused investor panic.

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