Covid-19: policy cart coming before the horse
- The Fed has cut its target rate by 50bp to a range of 1-1.25%, which places pressure on the BoE to make a similarly panicked move. I now expect a 25bp cut in March.- Domestic fundamentals have strengthened, but the impact of forthcoming virus-related restrictions is likely to hit the economy hard enough to hide this again.
- Tough talk is cheap now, but the evidence that the threat is overblown should prevent the political response from incurring such excessive costs. A rebound is likely as fear fades over the summer, which should discourage further stimulus.
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