Coronavirus: the Fed said the US economy is solid but “will intervene if necessary”

The president of the Federal Reserve (Fed), the central bank of the United States, Jerome Powell, He considered Friday that the fundamentals of the country’s economy are “solid” but said the agency is ready to intervene if the coronavirus epidemic makes it necessary.

“The coronavirus represents an increasing risk for economic activity,” Powell said in a statement, in which he assured that the institution “closely monitors” the evolution of the disease. Therefore, he said, “we will use our tools and act appropriately to sustain the economy.”

The announcement took place amid calls from the White House and former members of the agency so that this reduce your reference interest rate, currently in a range of between 1.5% and 1.75%. At its last meeting, at the end of January this year, the board decided not to change the rate, after lowering it three times during 2019.

The announcement seemed to be intended to provide certainty to global market players. at a time where the main financial indicators do not find floor. World stock markets closed a black week this Friday due to the devastating consequences for the coronavirus economy, and Most places registered unprecedented falls since the 2008 crisis.

In Europe, Paris yielded 3.38%, Frankfurt 3.86%, London left 3.39%; Madrid fell 2.92% and Milan lost 3.58%. Previously, the Shanghai, Sydney and Tokyo stock exchanges also lost more than 3%, and Jakarta more than 4%.

Oil also suffered the effects of that crash. In New York, the WTI reference barrel for April delivery ended with a loss of 4.9% at $ 44.76. In the week the fall was 16.1%, the most important in a week since 2008. Within minutes of closing, the North Sea Brent for delivery in April gave 3.2% to $ 50.49 in London. The situation poses a challenge for OPEC and its allies, which meet next Thursday and Friday in Vienna, home of the export cartel.

Other signs are equally worrisome, such as the level of the VIX volatility index (or “fear index”), the highest since 2011, the year of the public debt crisis in the euro zone.

“In a context of highly overvalued markets, what we feared was produced: The financial shock caused by the spread of the virus outside China is very strong, which gives a new dimension to the crisis”, Underlines in a note the analyst Véronique Riches-Flores.

This is a financial crisis, “for a long time feared that, if it continues, it would have potentially more harmful consequences than the COVID-19 epidemic itself,” he adds. “We are in panic mode, ”Said Ipek Ozkardeskaya, an analyst at Swissquote Bank.

“Almost all of the upward movement has been erased since last summer (borealis), and this in just one week,” notes Tangi Le Liboux, strategist at Aurel BGC. According to several analysts, it is not so much the severity of the epidemic that worries but the measures taken to contain it, especially harmful to the economy.

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