What if the Fed Cut Rates — and Nobody Cared?
Fears over the Coronavirus extend beyond financial markets to an overall lack of confidence in the Trump Administration’s handling of the crisis
What if the Fed cut rates, and nobody cared? That’s exactly that happened on Tuesday when, in a surprise move to calm markets rattled over the coronavirus, signals of a half point cut did little to settle investor fears. The lack of reassurance points to markets and the public waking up to a more troubling dynamic — a lack of confidence in the Trump Administration’s ability to handle the crisis.
First, there was the announcement that Pence will control the messaging, signaling that the Administration is treating the outbreak as a political rather than a public health problem, and placing an emphasis on optics rather than facts. This was further underscored by the President’s use of the word hoax in his response to the virus, verbiage he clumsily tried to walked back the next day after news of the first American death in Washington State. Treating coronavirus as a political problem is a dangerous game in the face of an unpredictable and deadly virus, and a mistake that China’s authoritarian government initially made to its detriment. That is is happening in the United States is deeply troubling.
Second, mismanagement at the Federal level, through the lack of accurate diagnostic tests from the CDC, and whistle blower complaints about the mishandling of the response by Health and Human Services when it came to the integrity of the federal quarantine of repatriated passengers from the Diamond Princess, to reported contamination of the testing lab have sparked criticism. The CDC’s quiet scrubbing of their website to remove the number of coronavirus tests administered further eroded public trust and led to an uproar earlier this week.
Trump has always been ill equipped to deal with a real emergency. But the continued misteps and the sheer incompetence on display throughout all aspects of the Federal response meant the rate cut never had a chance. No bandaid is capable of staunching this level of bleeding.
It’s become increasingly clear that the US is not prepared. While Americans like to think they have the best health care system in the world, the reality is that the stark divide in levels of care between those with good insurance and deep pockets, and those who go without threaten to undermine the public health response. Reports that patients were being saddled with $1400 diagnostic tests, and stuck with huge medical bills for doing the right thing and reporting symptoms will have a chilling effect on getting those who can least afford it to seek out care.
As one of the only countries without a government backed health care system, the US is facing a unique challenge that threatens to undermine efforts to track and contain a virus that appears readily transmissible and highly contagious. Compounding the concerns over health care is the lack of paid time off, particularly for the large numbers of people employed in the service industry and the gig economy. The resiliency of the American system of private care and lack of worker protections is about to be tested like never before, and even Wall Street (which has largely benefited from this status quo) suddenly doesn’t like to see itself holding the other side of that bet.
So are markets spooked? You bet they are. And undermining that fear is the reality that the scariest part is yet to come. The fact is the Fed has a limited set of tools in its reserves to try to calm those jitters, and it has even fewer now that it has preemptively deployed a rate cut to little effect. And the tools that are likeliest to be effective in bringing the coronavirus under control, such as free diagnostic testing and treatment, and paid sick leave (which have all been used in China and other countries) are some of the same platforms candidates like Bernie Sanders and Elizabeth Warren are running on. No wonder Wall Street and the Administration are running scared.