Coordinated Global Interest Rate Cut?
Kevin Warsh, a former member of the Federal Reserve Board, is floating the idea of the Federal Reserve coordinating a global interest rate cut to combat the unknown tail risk of coronavirus.
Warsh, in an opinion column in the Wall Street Journal, explains the central bank’s primary job is to offset major disturbances to the economy. "Today, the novel coronavirus is a material risk to the economy. It represents an unexpected shock, and the Federal Reserve should lead the world’s central banks in taking immediate action".
The US would cut the Fed Funds Rate in a globally coordinated rate cut alongside the People’s Bank of China, the European Central Bank, the Bank of England, the Bank of Japan and others so willing. Warsh suggests the Fed should announce a 0.25-percentage-point interest-rate cut and make clear it’s open-minded about further action.
Warsh says a coronavirus pandemic would be the biggest threat to the global economy since the financial crisis. We simply don’t know what will happen. The Fed should be in the business of responding to “tail risks”—unlikely events that would have highly damaging effects on output and inflation—not fine-tuning around the base economic outlook.