A Coronavirus Related Rate Cut?

News keeps building on the spread of the coronavirus around the world. South Korea has reported a thousand cases of the disease and over 50 deaths, with these numbers rapidly rising. The South Korean Government has responded by emulating the Chinese in quarantining whole cities.

Keep in mind that a little over a week ago South Korea’s coronavirus numbers were negligible. Cases of the virus have been reported across South Korea’s demilitarized border in the notoriously isolated North Korea – despite that country shutting down its borders, and even reportedly executing the infected. But the coronavirus is spreading well beyond East Asia. Iran is reporting a rapidly growing number of cases and deaths despite a negligible presence of the virus not long ago. Iran’s Minister of Health was recently seen delivering a press conference on the virus sweating profusely, coughing, and appearing weak – a sign of the severity of the outbreak, according to international media.

In Italy, the virus is rapidly spreading and prompting reported shortages of goods in stores and growing unease. These are the most high profile country cases of the global outbreak, with fear growing around the world, especially in Hong Kong, Taiwan, Japan, and Singapore. Over the last several days, media attention on the outbreak has become increasingly fearful and the apprehension has already hit international stock markets. U.S. markets are falling precipitously and experts are warning that the virus’ impact on international supply will be severe and widely felt. As we all know, China is the workshop of the world and the planet’s biggest exporter of goods ($2.5 trillion annually). Chinese companies are involved in the production processes of everything from steel to pharmaceuticals to computers to drones,. If Chinese factory output remains negatively affected by worker anxieties over the virus, global supply chains will be damaged.

In response to this intensifying and ongoing issue, financial experts and economists have already begun to call for the Federal Reserve to cut rates. The Wall Street Journal is following and reporting on the outbreak closely and featured an article where the rate cut argument was made. The front page of the paper ran a headline stating that the virus was beginning to take its toll on the global economy. The supply chain pressures experts are warning about have yet to be truly felt. The Federal Reserve is obviously monitoring the situation carefully and has not yet provided detailed comment on the virus outbreak. This goes for the BOC (Bank of Canada) as well. It is likely that if the severity of the virus continues to accelerate and if global markets continue to be negatively affected there could be a comprehensive international response – central banks acting in unison to stimulate the world economy.