FEMA, not the FOMC
EDITOR'S NOTE
If the U.S. economy were already slipping into recession when coronavirus hit, then would I support an emergency half-point Fed rate cut?
Yes, actually! But we are not in that kind of environment. Just look at today's jobless claims; new claims for unemployment insurance actually dropped by 3,000 last week to a near-historic low of 216,000.
Here's economist Stephen Stanley, of Amherst Pierpont: "I would have to imagine that since so many firms have had so much trouble hiring the workers that they have needed, they will be quite hesitant to lay people off, especially for a softening that is almost certainly going to prove temporary."
Thus, he writes today, "my guess is the labor market impact will be less than it would have been in a less-tight environment." (Emphasis mine.)
The tight labor market, in other words, should cushion the blow from coronavirus, or at least put workers at less risk than if we were in a recession already or clearly headed into one. But the Fed cut rates a half-point anyway, leaving us at just over 1% on their benchmark, meaning very, very few rate cuts are left before hitting zero.
And as Steve Liesman pointed out yesterday, the market already expects another half-point cut by April. That means we'd only have another half-point cut left after that before hitting zero and requiring the Fed's bond-buying (and inevitably, in my opinion, equity buying) to ramp back up in the case of a "real" recession.
So this is where FEMA comes in. This is actually something Ron Insana mentioned on Power Lunch the other day. And think about it: What does coronavirus most closely resemble? A financial panic (requiring a Fed response), or a natural disaster? It's not runs on banks that we're worried about here. It's runs on grocery stores.
And we have an emergency authority for that: FEMA. Who can quickly get checks and supplies to households (and businesses) in crisis? FEMA. Who has staff on the ground with experience in going house-to-house? FEMA. Who is used to coordinating such a crisis response? FEMA.
What irks me most are the fatalistic economist notes about how "yes, fiscal stimulus might work better here, but it would never get through Congress." Well, the central bank is supposed to be the lender of last resort, not the government of last resort. FEMA exists. We should use it.
See you at 1!
Kelly
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