What's going on?

As coronavirus continued to cause a great disturbance in the, er, markets over the weekend, central banks offered investors a glimmer of light on Monday.

What does this mean?

Late last week, the Federal Reserve (the Fed) indicated it�d be willing to lower US interest rates to help cushion the country�s economy from coronavirus-related disruptions. But it now turns out that the cut could be bigger than normal: economists at Goldman Sachs expect the Fed to slash rates by 0.5% when it meets later this month � double the 0.25% investors are used to.


The Bank of Japan and Bank of England � both poised to boost their respective economies � made similar statements to the Fed on Monday. Their readiness to act shouldn�t come as much of a surprise: the OECD � a major 36-country economic organization � warned the virus�s spread could halve the global economic growth it was anticipating in its previous forecast (tweet this).

Why should I care?

For markets: Lower rates, higher stocks.

Lower interest rates theoretically make stocks more attractive, since the lower potential return that investors make on safer investments (like new government bonds) could push them toward riskier assets. So investors might have been factoring in potential upcoming rate cuts when they bought up US and European shares on Monday, which initially pushed up prices.

The bigger picture: Lower rates, higher activity.

An arguably more important effect of lower rates is the drop in the cost of borrowing money. The hope is that it�ll encourage major companies around the world to take out cheaper loans and use the cash to build new plants, develop new products, and create new jobs � all of which would boost the real economy and, eventually, be reflected in company earnings reports.