As stocks tumble on worries about a fast-spreading virus, investors have been clamoring for the superheroes of the financial world to ride to the rescue once again.
Financial markets reeling from Coronavirus
As much as anything, the Federal Reserve and its counterparts around the world have helped drive up stocks over the past decade with their interest-rate cuts, stimulus programs and promises of support. Through the 2008 financial crisis, the 2011 European debt crisis and intermittent worries about a looming recession, actions by central banks have helped place a floor under stock prices. And one result was the longest U.S. bull market on record.
The hope — and expectation — that the Fed can provide the ultimate backstop for stock prices isn't surprising given its recent history of serving just that role. Its abrupt reversal from having raised rates four times in 2018 to cutting them three times in 2019 helped launch the S&P 500 into one of its most dazzling years in decades — a 31.5% return.
That risk might have been lessened after the central bank put out a statement Friday that pledged to “use our tools” to support the economy, a sign that Fed officials may indeed decide to cut rates soon. Economists worry that if COVID-19 breaks out as a global pandemic, panicky consumers would avoid shopping malls and restaurants, while businesses would close as workers stay home. Many companies would delay hiring, expanding and investing. Collectively, those trends could tip the U.S. and global economies into recession.
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