BlackRock Investment Institute

Macro insights

Why coronavirus policy execution is now key

Global central banks have mostly alleviated the dysfunction of market pricing and tightening of financial conditions. The Federal Reserve’s recent array of support measures – detailing its Main Street financing facility, its corporate bond facility and launching its muni bond facility – showed yet again how a central bank can use its balance sheet in new ways to support the economy. The sign post on policy is now about execution and delivery. There are difficulties in the U.S. in getting money out the door to households and business, and other countries are having trouble rolling out jobless benefits and bridging loans to small businesses.

The market – for now – is clearly willing to give a pass on the execution, focus on the coronavirus curves and see a reopening and recovery. But overcoming these execution challenges and is the thing to watch in coming weeks. We now need to see the policy support delivered and implemented in a timely way to limit the risk of permanent economic damage as we discuss in How large is the coronavirus macro shock?

The BlackRock G3 FCI and G3 Growth GPS, 2016-2020

Sources: BlackRock Investment Institute and Bloomberg, April 2020. Notes: The orange line shows the rate of GDP growth implied by our financial conditions indicator (FCI), based on its historical relationship with our Growth GPS. The BlackRock Growth GPS (green line) shows where the 12-month forward consensus GDP forecast may stand in three months’ time. The FCI inputs include policy rates, bond yields, corporate bond spreads, equity market valuations and exchange rates. Forward-looking estimates may not come to pass.

Recent macro insights

Spending mix key to inflation
U.S. consumers are spending more, last week’s U.S. personal consumption data show. But goods spending is not rising as quickly as it was last year.
Tighter conditions
U.S. financial conditions have tightened a lot in the last six months – in other words, financing is becoming more costly for individuals and companies
Red-hot goods inflation slows
High inflation is largely due to the massive pandemic-induced shift in consumer spending toward goods and away from services, in our view.