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Wall Street swoons on coronavirus fears — Stocks plunged for another day on Thursday, with the Dow suffering its biggest one-day point drop in history, as news of the coronavirus’ spread continued to dominate headlines. As of last night, markets were pricing in a whopping 96 percent chance that the Fed will cut rates next month, according to CME’s FedWatch Tool, a prediction that few traders would have made just days ago. But some economists aren’t convinced that a rate reduction is really the way to go, given that for now the economy is expected to be hurt by delayed shipments, not lack of demand.
Peterson Institute’s Adam Posen tells MM: “If it’s a supply shock, you generally don’t respond with short-term monetary policy because you want the markets to reprice and adjust to the new supply, and that’s especially true if it’s temporary. … Even though I’m sure President Trump will start screaming at them, they best wait and see. … Not to trivialize the human costs and the risks here, but we bounced back from 9/11, we bounced back from SARS. It takes a very major supply shock of great persistence to throw the economy off for any lengthy period.”
Prospects brighten for Judy Shelton — Federal Reserve nominee Judy Shelton might make it on the central bank’s board after all, with her nomination showing new signs of life, our Burgess Everett reports. After a really rough confirmation hearing that left some Senate Republicans skeptical, Shelton has won over Sen. Pat Toomey and is on the verge of winning the support of Sen. Richard Shelby. Burgess also notes that because Sen. Elizabeth Warren (D-Mass.) is generally on the road, Shelton could pass through committee with even a Republican “no” vote.
Trouble in CRA-land — Your MM host writes here about how Comptroller Joseph Otting’s proposed overhaul of the Community Reinvestment Act is facing resistance not just from community groups and Democrats, but also from banks themselves. Industry representatives warn that the proposal would hike their costs and in some cases actually dim their incentive to lend to people who don’t already have access to credit. Especially concerning to bankers: They don’t have time to crunch the numbers on what the new regime would mean for their bottom line.
IT’S FRIDAY! — Ben White is on hiatus but will be back next month. In the meantime, please send tips to me at email@example.com and @vtg2, and to my coworkers Zach Warmbrodt (firstname.lastname@example.org), Katy O’Donnell (email@example.com) and Aubree Eliza Weaver (firstname.lastname@example.org).
APPROPRIATORS PLAN WEEKEND WORK ON CORONAVIRUS — Our Caitlin Emma for Pros: “Congressional appropriators are racing to pull together a multibillion-dollar emergency package to combat the coronavirus, aiming for passage as early as next week. Spending leaders in both chambers will keep talking over the weekend as they try to settle on an overall number, according to a person familiar with the negotiations. House Speaker Nancy Pelosi said bipartisan discussions on a final figure are getting ‘close.’”
CORONAVIRUS OUTBREAK WOULD JEOPARDIZE RECORD EXPANSION — WSJ’s Eric Morath and Harriet Torry: “A U.S. coronavirus outbreak would trigger temporary but widespread disruptions of people’s lives and business activity, posing a new risk to the nation’s longest economic expansion on record. … The U.S. economy is already feeling an impact, though the disease has yet to spread here. Some U.S. manufacturers have been unable to obtain components, hotels and resorts are seeing a drop off in international tourism and retailers are worried about having adequate inventory to meet U.S. demand.”
A CORONAVIRUS CZAR BY ANOTHER NAME — Our Adam Cancryn, Quint Forgey and Dan Diamond: “In the end, President Donald Trump got a coronavirus czar — without having to call it a czar. Vice President Mike Pence, whom Trump appointed Wednesday to lead his coronavirus response, announced a global health official as the “White House coronavirus response coordinator” — installing a czar-like figure under him to guide the administration’s response to the outbreak after a protracted public dance around how to display the power of the federal bureaucracy to the American people.”
STOCKS ENTER CORRECTION TERRITORY — NYT’s Matt Phillips: “Global markets tumbled for a sixth consecutive day on Thursday, dragging down the S&P 500 more than 10 percent in just a week, reflecting rising fears over the coronavirus that is spreading quickly around the world. The S&P 500 fell 4.4 percent on Thursday, the worst single day slide for the market since August 2011. The index is on pace for its worst weekly performance since the 2008 financial crisis. Stocks in Europe and Asia were also hard hit on Thursday.”
INVESTORS SHY AWAY FROM RISK — AP’s Alex Veiga: “This week’s big sell-off on Wall Street suggests stocks have finally caught up to the bond market, where fear of an economic slowdown has been evident for months. … The anxiety led traders to do something they haven’t been doing lately — move away from riskier holdings.”
IMF CONSIDERS REMOTE MEETINGS — Reuters’ Andrea Shalal: “Growing concerns inside the International Monetary Fund and the World Bank about the spread of the new coronavirus have prompted the institutions to consider scaling back their Spring Meetings in April or hold them by teleconference, people familiar with the discussions said.”
SHOULD BANK RATINGS BE PUBLIC? — New post from Brookings Institution’s Aaron Klein, arguing that CAMELS ratings should be public for all banks: “CAMELS ratings form the backbone of bank regulation and supervision, making them core to financial regulation. … The current system does in fact make a small subset of the largest financial institutions ratings cumulative CAMELS public, albeit in an indirect and slightly lagged basis. This creates an unlevel playing field whereby a series of incentives apply to regulators and financial institutions regarding the ramification of such a downgrade, that do not exist for the smaller financial institutions.”
SMALL BANKS SAY LIBOR REPLACEMENT ISN’T WORKING — Bloomberg’s Alex Harris: “Officials from 10 mid-sized American banks said U.S. regulators’ preferred index for replacing the maligned Libor benchmark doesn’t work for them. The Secured Overnight Financing Rate, or SOFR, is appropriate for large banks as a Libor substitute because they have stronger ties to the market for repurchase agreements, according to the letter sent by 10 banks to Federal Reserve Vice Chairman Randal Quarles, Comptroller of the Currency Joseph Otting and Federal Deposit Insurance Corp. Chair Jelena McWilliams. But it’s ill-suited for smaller ones, they said.”
CHINESE STOCKS HOLDING UP — WSJ’s Akane Otani: “Growing fears about the coronavirus epidemic have sent stocks around the world diving in February. But some regions have held up better than others. In fact, an exchange-traded fund tracking shares in mainland China — where the novel coronavirus is believed to have originated — has raced past its counterparts in much of the world. Xtrackers’ Harvest CSI 300 China A-Shares ETF has jumped 9.9 percent for the month through Wednesday. In comparison, the S&P 500 has fallen 3.4 percent over the same period.”
FED TACKLES DIVERSITY ONE BOARD MEMBER AT A TIME — Reuters’ Ann Saphir and Lindsay Dunsmuir: “The Federal Reserve, long criticized for being too white and male, crossed a substantial milestone last year: for the first time in its 107-year history, white men held fewer than half of board seats at the Fed’s 12 regional outposts. The shift, reinforced this January with a fresh round of appointments, has drawn little notice outside the Fed itself. But it is a window into how the U.S. central bank is setting the table for change among top policymakers, where progress toward diversity has been slow.”
ECONOMY GREW AT 2.1 PERCENT RATE IN Q4 — AP’s Martin Crutsinger: “The U.S. economy grew at an annual rate of 2.1% in the final quarter of last year, but damage from the spreading coronavirus is likely depressing growth in the current quarter and for the rest of the year. The overall pace of growth in the October-December quarter was unchanged from its initial estimate a month ago, though the components were slightly altered, the Commerce Department said Thursday.”
NEW ‘DIRTY MONEY’ — Season 2 of the Netflix show “Dirty Money” will feature episodes on the Wells Fargo fake accounts scandal; the 1MDB scandal, a multibillion-dollar fraud involving Goldman Sachs and a Malaysian government investment fund; and four other stories. It premieres on March 11. Trailer here.