With financial markets still being shaken, major economies are urged to make tenacious efforts to cope with the global economic downturn.
The Federal Reserve Board held a meeting Tuesday of the Federal Open Market Committee and decided to cut interest rates by a half percentage point as an emergency move.
It is the first time for the Fed to decide on a rate cut outside of a regular policy meeting since October 2008, just after the collapse of Lehman Brothers. The cut is also twice the size of a typical rate move by the central bank.
The increasing likelihood that the outbreak of the new coronavirus, which is spreading worldwide, will have a greater impact on the real economy than initially thought appears to have prompted the decision.
The Fed made a preemptive move without waiting for a regular policy meeting in mid-March. This step indicates the central bank's intention to demonstrate its strong commitment to preventing an economic slowdown by any means.
The Dow Jones Industrial Average plunged 785 points on Tuesday, but there is no need to react to every move in stock prices. The Fed's latest rate cut is different from the one decided when the economy was hit by a financial crisis in which a series of major banks were falling into bankruptcy.
"In the weeks and months ahead, we will continue to closely monitor developments and their implications for the economic outlook," Chair Jerome Powell said at a news conference. "And we will use our tools and act as appropriate to support the economy." It is important for the Fed to calmly assess the situation and take measures depending on developments.
Prior to the Fed move, finance ministers and central bank governors of the Group of Seven major developed countries held an emergency telephone conference. Their joint statement said the G7 will "use all appropriate policy tools," including fiscal measures.
The G7 announcement shared a similar outline with the joint statement issued at a meeting of finance ministers and central bank governors of the Group of 20 major economies in February. However, it is significant for the G7 members, which share values, to again demonstrate their solidarity.
It is hard to predict at this moment how far the impact of the outbreak will spread. As long as the market turmoil cannot be eased any time soon, it is essential for the G7 countries to work together and do their best to stabilize the economy.
Hereafter, the focus will likely be on what responses will be implemented by such institutions as the Bank of Japan, the European Central Bank and the Bank of England.
The BOJ and the ECB have already adopted a negative interest rate policy. Even if they cut rates further, the boost to the economy will be limited. This move could also further worsen the profitability of financial institutions. It is hoped that the central banks will explore the "next step" they can take by considering the positive and negative effects.
Of course, it is difficult for monetary policies alone to boost the economy.
The governments of Japan, the United States and European countries should consider additional fiscal measures depending on the situation. In the short term, it is important for them to implement measures that can minimize economic deterioration.
It is hoped that the governments can overcome this crisis through a wide range of measures, such as providing emergency loans to help hotels and other financially troubled companies suffering from falling revenues, as well as offering financial assistance to workers who are forced to take days off.
-- The original Japanese article appeared in The Yomiuri Shimbun on March 5, 2020.
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