The FOMC released its minutes from the January 28th/29th meeting last week, and as expected, coronavirus is not a needle mover at this point. While the virus has been added to the Fed’s list of risks to the global growth outlook, it warrants “close watching” rather than an immediate policy response. In other words, don’t expect another “insurance cut” like we saw in 2019. Any policy response to the coronavirus threat we’d see will likely be reactive rather than proactive.

While the Fed pursues its “wait and see” approach, The People’s Bank of China (PBOC), unfortunately, does not have the same luxury. On February 20th, the PBOC cut its benchmark 1-year Loan Prime Rate (LPR) by 10bps and its 5-year LPR target by 5bps.

On one hand, these cuts are nominal. Can a 5bps -10bps rate cut really provide much stimulus to the Chinese economy over the short term? I don’t think so. On the other hand, when taken in conjunction with the PBOC’s $170bn liquidity injection on Feb 2nd, these cuts could represent a shift towards more accommodative policy by the PBOC, one of the only major central banks with substantial room for further cuts.

On the balance sheet front, the minutes noted that the Fed’s treasury bill purchases will continue to the tune of $60bn per ...

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