Elsewhere in this quarterly, we focus on the social distancing measures taken to limit the spread of the virus. In this piece, we focus on the major developed economies and the extraordinary measures they have taken in order to protect themselves from the economic impact of the coronavirus. Major events have been plotted on a timeline by country, alongside key referral points which shows the speed and the strength of each government’s response. The countries covered in this report are the United States, Japan, the United Kingdom, France, Germany, Spain, and Italy.
The United States
COVID-19 is already having a profound impact on the US jobs market, with over 33 million workers filing for jobless benefits over the past six weeks ending April 25. his already represents around 22% of the labor force. With unemployment around 3.5% before the crisis, that means unemployment is most likely already above 25% and potentially headed to over 30%. The International Monetary Fund (IMF) sees the US economy contracting -5.9% this year, followed by 4.5% growth next year.
The Fed quickly cut the Fed Funds rates by 150 basis points (bp) to the effective lower bound of 0.0-0.25% over the course of two emergency meetings on March 3 and 15. Prior to the pandemic, the Fed had already started buying T-bills starting in October 2019 at a rate of $60 billion per month to address dislocations in the repo market. Once the pandemic hit, the Fed ramped up quantitative easing (QE) on March 23 to effectively run with no limits until the economic outlook improves.
The Fed has also engaged in a series of major asset purchase programs to improve liquidity in the government and asset ABS market, along with facilities to support money markets. Some sub-investment grade bonds and municipal bonds are now seeing Fed support as well. All of these measures have led the Fed’s balance sheet to explode from around $4.2 trillion at the end of 2019 to $6.7 billion at the end of April. The Fed also announced (and later expanded) its so-called Main Street Loan Program designed to keep credit flowing to US businesses. Finally, like other central banks around the world, the Fed has loosened up some regulatory measures that should help finance additional lending by the commercial banks.
The fiscal offensive by the US government was swift and decisive, with mostly bi-partisan support. We have seen several main sets of measures so far, and another one is becoming increasingly likely that will help support states and municipalities directly. All told, the fiscal measures so far amount to nearly $3 trillion, or 15% of GDP. Here is the breakdown:
Paycheck Protection Program and Health Care Enhancement Act - $484 billion; this provides mainly for loans and guarantees for small businesses to retain their workers
Coronavirus Aid, Relief and Economy Security Act (“CARES Act”) - $2.3 trillion; this provides mainly for the one-time payments for individuals, expanded unemployment benefits, aid for hospitals and healthcare, and providing food for the most needy.
Coronavirus Preparedness and Response Supplemental Appropriations Act - $8.3 billion; this provides mainly for virus testing
Families First Coronavirus Response Act - US$192 billion; this provides mainly for paid sick leave for workers