Global central banks have already set interest rates at record lows and earmarked trillions of dollars on asset purchases as an economic response to the coronavirus pandemic.
The U.S. Federal Reserve, Bank of Japan and European Central Bank––whose countries account for nearly half of global output––will meet this week as governments confirm multi-year expansions ended in the first quarter of 2020. Money makers might need to extend the quantitative easing, helping ease credit to troubled businesses and committing to rock-bottom rates for longer.
“The extremity of the virus crisis is forcing central banks to push the limits of the possible,” said Tom Orlik, chief economist at Bloomberg Economics. “We expect the ECB to expand its fire fighting Pandemic Emergency Purchase Programme and the Bank of Japan to roll out more support for corporates. Ahead of the game in terms of the size and scope of stimulus, the Fed won’t add additional support, but will confirm it has space to do more.”
The meeting, which is due to take place April 28-29, represents the first scheduled confab since January, though officials have met multiple times since then.
The central banks cut rates to virtually zero, rolling out a series of emergency and unorthodox lending facilities to support markets and maintain credit flowing to businesses. The Fed’s balance sheet has already reached $6.57 trillion, and Bank of America predicts it could reach $8 trillion.
Markets will be looking for hints from Fed Chairman Jerome Powell about what actions the bank will take. Across the pond, the European Central Bank will set policy on Thursday as member states work together on fiscal action.
President Christine Lagarde noted that they may have done too little, too late, and warned that the euro-area economy could shrink as much as 15% this year. ECB will likely bump up asset purchases by more than a trillion euros in 2020, eased restrictions for banks to finance loans to companies, and agreed it would accept junk bonds as collateral for bank loans
The Bank of Japan increased its purchase of exchange-traded funds and corporate bonds, and will discuss on Monday allowing unlimited government bond purchases––taking place of their 80 trillion yen target.
Governor Haruhiko Kuroda and fellow policy makers will likely issue credit to businesses hurt by the pandemic. In addition, BoJ might increase purchase targets for commercial paper and corporate bonds, or expand a new lending operation for small firms.