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Coronavirus Fears Are Driving Interest Rates Down, a Bad Omen for the Economy Coronavirus Fears Are Driving Interest Rates Down, a Bad Omen for the Economy
(about 11 hours later)
The development with the most profound signal about the future of the global economy has not been the steep drop in the stock market over the last week. Instead, it’s what has been happening in the bond markets.The development with the most profound signal about the future of the global economy has not been the steep drop in the stock market over the last week. Instead, it’s what has been happening in the bond markets.
Global interest rates are plunging. Partly this reflects the general rush to safe investments that takes place whenever the world economy looks dangerous. But it also reflects expectations that the Federal Reserve and other central banks will cut interest rates or take other action to try to contain the economic damage of coronavirus.Global interest rates are plunging. Partly this reflects the general rush to safe investments that takes place whenever the world economy looks dangerous. But it also reflects expectations that the Federal Reserve and other central banks will cut interest rates or take other action to try to contain the economic damage of coronavirus.
That amounts to a powerful and pessimistic warning about the world economy in years to come. And that warning remains valid even if the economic damage from the coronavirus epidemic turns out to be mild and short-lived.That amounts to a powerful and pessimistic warning about the world economy in years to come. And that warning remains valid even if the economic damage from the coronavirus epidemic turns out to be mild and short-lived.
The yield on the benchmark 10-year United States Treasury bonds fell to a record low of 1.16 percent in trading Friday morning, down from 1.9 percent at the start of the year and 2.7 percent one year ago. From Japan to Germany to Australia, every other major economy is experiencing a similar shift.The yield on the benchmark 10-year United States Treasury bonds fell to a record low of 1.16 percent in trading Friday morning, down from 1.9 percent at the start of the year and 2.7 percent one year ago. From Japan to Germany to Australia, every other major economy is experiencing a similar shift.
Usually longer-term interest rates fall to very low levels only at times of financial panic and recession. But currently, the economy is in sound shape and investors are seeing only the threat of economic disruption rather than the reality.Usually longer-term interest rates fall to very low levels only at times of financial panic and recession. But currently, the economy is in sound shape and investors are seeing only the threat of economic disruption rather than the reality.
It is the financial markets’ way of saying that the Fed and other central banks will need to keep rates exceptionally low indefinitely — that the era of cheap money not only isn’t over, but is only beginning. And that leaves the world economy all the more vulnerable if things were to really take a turn for the worse.It is the financial markets’ way of saying that the Fed and other central banks will need to keep rates exceptionally low indefinitely — that the era of cheap money not only isn’t over, but is only beginning. And that leaves the world economy all the more vulnerable if things were to really take a turn for the worse.
“If this is a severe shock, they don’t have the ammunition to deal with it,” said Joseph Gagnon, a senior fellow at the Peterson Institute for International Economics. He has argued that the Fed has the capacity to offset only a mild to moderate recession, given the low level of interest rates even before the latest pandemic fears.“If this is a severe shock, they don’t have the ammunition to deal with it,” said Joseph Gagnon, a senior fellow at the Peterson Institute for International Economics. He has argued that the Fed has the capacity to offset only a mild to moderate recession, given the low level of interest rates even before the latest pandemic fears.
If just the threat of coronavirus is enough to push rates below their lowest levels during the global financial crisis of a decade ago or the Great Depression, that means central banks are likely to find themselves desperately short of ammunition if the virus, or some other future setback, causes real economic disturbance rather than just the fear of it.If just the threat of coronavirus is enough to push rates below their lowest levels during the global financial crisis of a decade ago or the Great Depression, that means central banks are likely to find themselves desperately short of ammunition if the virus, or some other future setback, causes real economic disturbance rather than just the fear of it.
Look at it this way: One year ago, the short-term interest rate that the Fed uses to guide the economy was above 2.25 percent. Last summer and fall, as trade wars and a slowing global economy appeared to threaten the American economy, the Fed cut that rate three times, to its current level of just above 1.5 percent. It seemingly worked.Look at it this way: One year ago, the short-term interest rate that the Fed uses to guide the economy was above 2.25 percent. Last summer and fall, as trade wars and a slowing global economy appeared to threaten the American economy, the Fed cut that rate three times, to its current level of just above 1.5 percent. It seemingly worked.
Today, with major negative economic consequences of the coronavirus looking increasingly likely, futures markets indicate that investors expect two or three further interest rate cuts this year.Today, with major negative economic consequences of the coronavirus looking increasingly likely, futures markets indicate that investors expect two or three further interest rate cuts this year.
There’s a debate underway among economists and market watchers over whether such moves are wise.There’s a debate underway among economists and market watchers over whether such moves are wise.
The Fed’s interest rate tools are poorly suited to protect the economy from shutdowns in production resulting from disease fears. Economists can’t invent a vaccine or slow disease transmission rates. On the other hand, you go to war with the recession-fighting tools you have, not those you might wish to have.The Fed’s interest rate tools are poorly suited to protect the economy from shutdowns in production resulting from disease fears. Economists can’t invent a vaccine or slow disease transmission rates. On the other hand, you go to war with the recession-fighting tools you have, not those you might wish to have.
But assuming the central bank indeed cuts interest rates to try to buffer the economy from damage, it would find itself with interest rates of around 1 percent or lower, in an economy that is doing quite well, for the moment at least.But assuming the central bank indeed cuts interest rates to try to buffer the economy from damage, it would find itself with interest rates of around 1 percent or lower, in an economy that is doing quite well, for the moment at least.
That leaves little room for further stimulus through that conventional tool. Even a mild downturn would mean the Fed would be looking to less conventional tools, including the quantitative easing policies used extensively from 2009 through 2014, and sending more explicit signals about its intention to keep rates low far into the future.That leaves little room for further stimulus through that conventional tool. Even a mild downturn would mean the Fed would be looking to less conventional tools, including the quantitative easing policies used extensively from 2009 through 2014, and sending more explicit signals about its intention to keep rates low far into the future.
Updated June 16, 2020Updated June 16, 2020
The steroid, dexamethasone, is the first treatment shown to reduce mortality in severely ill patients, according to scientists in Britain. The drug appears to reduce inflammation caused by the immune system, protecting the tissues. In the study, dexamethasone reduced deaths of patients on ventilators by one-third, and deaths of patients on oxygen by one-fifth.
The coronavirus emergency relief package gives many American workers paid leave if they need to take time off because of the virus. It gives qualified workers two weeks of paid sick leave if they are ill, quarantined or seeking diagnosis or preventive care for coronavirus, or if they are caring for sick family members. It gives 12 weeks of paid leave to people caring for children whose schools are closed or whose child care provider is unavailable because of the coronavirus. It is the first time the United States has had widespread federally mandated paid leave, and includes people who don’t typically get such benefits, like part-time and gig economy workers. But the measure excludes at least half of private-sector workers, including those at the country’s largest employers, and gives small employers significant leeway to deny leave.The coronavirus emergency relief package gives many American workers paid leave if they need to take time off because of the virus. It gives qualified workers two weeks of paid sick leave if they are ill, quarantined or seeking diagnosis or preventive care for coronavirus, or if they are caring for sick family members. It gives 12 weeks of paid leave to people caring for children whose schools are closed or whose child care provider is unavailable because of the coronavirus. It is the first time the United States has had widespread federally mandated paid leave, and includes people who don’t typically get such benefits, like part-time and gig economy workers. But the measure excludes at least half of private-sector workers, including those at the country’s largest employers, and gives small employers significant leeway to deny leave.
So far, the evidence seems to show it does. A widely cited paper published in April suggests that people are most infectious about two days before the onset of coronavirus symptoms and estimated that 44 percent of new infections were a result of transmission from people who were not yet showing symptoms. Recently, a top expert at the World Health Organization stated that transmission of the coronavirus by people who did not have symptoms was “very rare,” but she later walked back that statement.So far, the evidence seems to show it does. A widely cited paper published in April suggests that people are most infectious about two days before the onset of coronavirus symptoms and estimated that 44 percent of new infections were a result of transmission from people who were not yet showing symptoms. Recently, a top expert at the World Health Organization stated that transmission of the coronavirus by people who did not have symptoms was “very rare,” but she later walked back that statement.
Touching contaminated objects and then infecting ourselves with the germs is not typically how the virus spreads. But it can happen. A number of studies of flu, rhinovirus, coronavirus and other microbes have shown that respiratory illnesses, including the new coronavirus, can spread by touching contaminated surfaces, particularly in places like day care centers, offices and hospitals. But a long chain of events has to happen for the disease to spread that way. The best way to protect yourself from coronavirus — whether it’s surface transmission or close human contact — is still social distancing, washing your hands, not touching your face and wearing masks.Touching contaminated objects and then infecting ourselves with the germs is not typically how the virus spreads. But it can happen. A number of studies of flu, rhinovirus, coronavirus and other microbes have shown that respiratory illnesses, including the new coronavirus, can spread by touching contaminated surfaces, particularly in places like day care centers, offices and hospitals. But a long chain of events has to happen for the disease to spread that way. The best way to protect yourself from coronavirus — whether it’s surface transmission or close human contact — is still social distancing, washing your hands, not touching your face and wearing masks.
A study by European scientists is the first to document a strong statistical link between genetic variations and Covid-19, the illness caused by the coronavirus. Having Type A blood was linked to a 50 percent increase in the likelihood that a patient would need to get oxygen or to go on a ventilator, according to the new study.A study by European scientists is the first to document a strong statistical link between genetic variations and Covid-19, the illness caused by the coronavirus. Having Type A blood was linked to a 50 percent increase in the likelihood that a patient would need to get oxygen or to go on a ventilator, according to the new study.
The unemployment rate fell to 13.3 percent in May, the Labor Department said on June 5, an unexpected improvement in the nation’s job market as hiring rebounded faster than economists expected. Economists had forecast the unemployment rate to increase to as much as 20 percent, after it hit 14.7 percent in April, which was the highest since the government began keeping official statistics after World War II. But the unemployment rate dipped instead, with employers adding 2.5 million jobs, after more than 20 million jobs were lost in April.The unemployment rate fell to 13.3 percent in May, the Labor Department said on June 5, an unexpected improvement in the nation’s job market as hiring rebounded faster than economists expected. Economists had forecast the unemployment rate to increase to as much as 20 percent, after it hit 14.7 percent in April, which was the highest since the government began keeping official statistics after World War II. But the unemployment rate dipped instead, with employers adding 2.5 million jobs, after more than 20 million jobs were lost in April.
Mass protests against police brutality that have brought thousands of people onto the streets in cities across America are raising the specter of new coronavirus outbreaks, prompting political leaders, physicians and public health experts to warn that the crowds could cause a surge in cases. While many political leaders affirmed the right of protesters to express themselves, they urged the demonstrators to wear face masks and maintain social distancing, both to protect themselves and to prevent further community spread of the virus. Some infectious disease experts were reassured by the fact that the protests were held outdoors, saying the open air settings could mitigate the risk of transmission.Mass protests against police brutality that have brought thousands of people onto the streets in cities across America are raising the specter of new coronavirus outbreaks, prompting political leaders, physicians and public health experts to warn that the crowds could cause a surge in cases. While many political leaders affirmed the right of protesters to express themselves, they urged the demonstrators to wear face masks and maintain social distancing, both to protect themselves and to prevent further community spread of the virus. Some infectious disease experts were reassured by the fact that the protests were held outdoors, saying the open air settings could mitigate the risk of transmission.
States are reopening bit by bit. This means that more public spaces are available for use and more and more businesses are being allowed to open again. The federal government is largely leaving the decision up to states, and some state leaders are leaving the decision up to local authorities. Even if you aren’t being told to stay at home, it’s still a good idea to limit trips outside and your interaction with other people.States are reopening bit by bit. This means that more public spaces are available for use and more and more businesses are being allowed to open again. The federal government is largely leaving the decision up to states, and some state leaders are leaving the decision up to local authorities. Even if you aren’t being told to stay at home, it’s still a good idea to limit trips outside and your interaction with other people.
Common symptoms include fever, a dry cough, fatigue and difficulty breathing or shortness of breath. Some of these symptoms overlap with those of the flu, making detection difficult, but runny noses and stuffy sinuses are less common. The C.D.C. has also added chills, muscle pain, sore throat, headache and a new loss of the sense of taste or smell as symptoms to look out for. Most people fall ill five to seven days after exposure, but symptoms may appear in as few as two days or as many as 14 days.Common symptoms include fever, a dry cough, fatigue and difficulty breathing or shortness of breath. Some of these symptoms overlap with those of the flu, making detection difficult, but runny noses and stuffy sinuses are less common. The C.D.C. has also added chills, muscle pain, sore throat, headache and a new loss of the sense of taste or smell as symptoms to look out for. Most people fall ill five to seven days after exposure, but symptoms may appear in as few as two days or as many as 14 days.
If air travel is unavoidable, there are some steps you can take to protect yourself. Most important: Wash your hands often, and stop touching your face. If possible, choose a window seat. A study from Emory University found that during flu season, the safest place to sit on a plane is by a window, as people sitting in window seats had less contact with potentially sick people. Disinfect hard surfaces. When you get to your seat and your hands are clean, use disinfecting wipes to clean the hard surfaces at your seat like the head and arm rest, the seatbelt buckle, the remote, screen, seat back pocket and the tray table. If the seat is hard and nonporous or leather or pleather, you can wipe that down, too. (Using wipes on upholstered seats could lead to a wet seat and spreading of germs rather than killing them.)If air travel is unavoidable, there are some steps you can take to protect yourself. Most important: Wash your hands often, and stop touching your face. If possible, choose a window seat. A study from Emory University found that during flu season, the safest place to sit on a plane is by a window, as people sitting in window seats had less contact with potentially sick people. Disinfect hard surfaces. When you get to your seat and your hands are clean, use disinfecting wipes to clean the hard surfaces at your seat like the head and arm rest, the seatbelt buckle, the remote, screen, seat back pocket and the tray table. If the seat is hard and nonporous or leather or pleather, you can wipe that down, too. (Using wipes on upholstered seats could lead to a wet seat and spreading of germs rather than killing them.)
Taking one’s temperature to look for signs of fever is not as easy as it sounds, as “normal” temperature numbers can vary, but generally, keep an eye out for a temperature of 100.5 degrees Fahrenheit or higher. If you don’t have a thermometer (they can be pricey these days), there are other ways to figure out if you have a fever, or are at risk of Covid-19 complications.Taking one’s temperature to look for signs of fever is not as easy as it sounds, as “normal” temperature numbers can vary, but generally, keep an eye out for a temperature of 100.5 degrees Fahrenheit or higher. If you don’t have a thermometer (they can be pricey these days), there are other ways to figure out if you have a fever, or are at risk of Covid-19 complications.
The C.D.C. has recommended that all Americans wear cloth masks if they go out in public. This is a shift in federal guidance reflecting new concerns that the coronavirus is being spread by infected people who have no symptoms. Until now, the C.D.C., like the W.H.O., has advised that ordinary people don’t need to wear masks unless they are sick and coughing. Part of the reason was to preserve medical-grade masks for health care workers who desperately need them at a time when they are in continuously short supply. Masks don’t replace hand washing and social distancing.The C.D.C. has recommended that all Americans wear cloth masks if they go out in public. This is a shift in federal guidance reflecting new concerns that the coronavirus is being spread by infected people who have no symptoms. Until now, the C.D.C., like the W.H.O., has advised that ordinary people don’t need to wear masks unless they are sick and coughing. Part of the reason was to preserve medical-grade masks for health care workers who desperately need them at a time when they are in continuously short supply. Masks don’t replace hand washing and social distancing.
If you’ve been exposed to the coronavirus or think you have, and have a fever or symptoms like a cough or difficulty breathing, call a doctor. They should give you advice on whether you should be tested, how to get tested, and how to seek medical treatment without potentially infecting or exposing others.If you’ve been exposed to the coronavirus or think you have, and have a fever or symptoms like a cough or difficulty breathing, call a doctor. They should give you advice on whether you should be tested, how to get tested, and how to seek medical treatment without potentially infecting or exposing others.
If you’re sick and you think you’ve been exposed to the new coronavirus, the C.D.C. recommends that you call your healthcare provider and explain your symptoms and fears. They will decide if you need to be tested. Keep in mind that there’s a chance — because of a lack of testing kits or because you’re asymptomatic, for instance — you won’t be able to get tested.If you’re sick and you think you’ve been exposed to the new coronavirus, the C.D.C. recommends that you call your healthcare provider and explain your symptoms and fears. They will decide if you need to be tested. Keep in mind that there’s a chance — because of a lack of testing kits or because you’re asymptomatic, for instance — you won’t be able to get tested.
The United States, essentially, would look even more like Japan and Europe, where interest rates have fallen into negative territory and stayed there for years. In Germany, the 10-year government bond yielded negative 0.55 percent Thursday; in Japan it was negative 0.12 percent.The United States, essentially, would look even more like Japan and Europe, where interest rates have fallen into negative territory and stayed there for years. In Germany, the 10-year government bond yielded negative 0.55 percent Thursday; in Japan it was negative 0.12 percent.
To be clear, conditions are hardly dystopian in Western Europe or Japan. Countries can maintain high living standards and decent job markets even with the low-growth future that Treasury bond rates are implying.To be clear, conditions are hardly dystopian in Western Europe or Japan. Countries can maintain high living standards and decent job markets even with the low-growth future that Treasury bond rates are implying.
The combination of low interest rates and large-scale deficit spending by the federal government has been enough to keep the United States growing for more than a decade, and has pushed the unemployment rate consistently below 4 percent.The combination of low interest rates and large-scale deficit spending by the federal government has been enough to keep the United States growing for more than a decade, and has pushed the unemployment rate consistently below 4 percent.
But it raises a crucial question: If it took all this to achieve that continued growth, what would it take to deal with an actual economic crisis? The latest news developments around coronavirus, and the bond market moves in response, suggest we’re about to find out.But it raises a crucial question: If it took all this to achieve that continued growth, what would it take to deal with an actual economic crisis? The latest news developments around coronavirus, and the bond market moves in response, suggest we’re about to find out.