Coronavirus: what happens next?

The immediate impact of the coronavirus outbreak is bad enough, writes John Stepek. But the real risk is that it could change our financial system forever.

If we weren’t already convinced that the coronavirus was a serious threat, we know it for sure now. The Federal Reserve on Tuesday announced an emergency interest-rate cut, slashing the key Fed Funds target range by 0.5 percentage points, to 1%-1.25%. The US central bank will be meeting officially in less than a fortnight, but it decided that it simply couldn’t wait. That’s the first time the Fed has done that since 2008. On every other occasion that we’ve seen an emergency cut (certainly in the last 20 years), we’ve either been in the midst, or on the verge of a major panic in markets. So it’s not an encouraging precedent.

On the one hand, it’s easy to see why the Fed felt nervous. In the last week of February, the S&P 500 fell by 11%, its worst showing since 2008. Meanwhile, the yield on US government bonds (Treasuries) plunged to record lows as investors sought out “safe havens” and bet on a decline in interest rates, which indicates that investors fear a recession is nigh. In some ways the Fed was merely playing “catch up” with markets. On the other hand, the move came as a shock to many – markets fell in the aftermath and, as Jeremy Warner put it in The Daily Telegraph, the instinctive question is: “Does the Fed know something the rest of us do not?” So the question is: is the Fed right to be this worried and what does it mean for investors?

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John Stepek

John Stepek is a senior reporter at Bloomberg News and a former editor of MoneyWeek magazine. He graduated from Strathclyde University with a degree in psychology in 1996 and has always been fascinated by the gap between the way the market works in theory and the way it works in practice, and by how our deep-rooted instincts work against our best interests as investors.

He started out in journalism by writing articles about the specific business challenges facing family firms. In 2003, he took a job on the finance desk of Teletext, where he spent two years covering the markets and breaking financial news.

His work has been published in Families in Business, Shares magazine, Spear's Magazine, The Sunday Times, and The Spectator among others. He has also appeared as an expert commentator on BBC Radio 4's Today programme, BBC Radio Scotland, Newsnight, Daily Politics and Bloomberg. His first book, on contrarian investing, The Sceptical Investor, was released in March 2019. You can follow John on Twitter at @john_stepek.