Central banks take slow response

FRANKFURT/TOKYO — Will the world’s big central banks leave U.S. Federal Reserve Chair Jerome Powell hanging? They’re certainly going to try.

No major central bank has yet matched the Fed’s emergency rate cut in response to the coronavirus outbreak and there is mounting evidence that counterparts in the euro zone, Japan, Britain and Switzerland are keen to avoid a hasty response.

While the coronavirus outbreak is already disrupting global supply chains, slowing industrial activity, grounding flights and hitting financial markets, central banks have more reason to hold out than pull the trigger.

A quick response might exacerbate the market selloff because it could suggest panic on the part of policymakers. It may also be ineffective because monetary policy moves such as rate cuts typically take a while to feed through to the broader economy.

More importantly, most major central banks exhausted much of their arsenal during the years of stimulus following the financial crisis, so any further moves would require an even deeper dive into unconventional waters - which would require time both to design and debate potential policies.

So for now, central bankers want to keep the pressure on governments to take the lead instead, sources familiar with the thinking of some major policymakers said.

“There is immense pressure on us to act - from markets, the media and the Fed’s cut - so in the end, we may be forced into an emergency move but we’ll try to resist,” a source familiar with the European Central Bank’s (ECB) thinking said.