Further remarks by BOE MPC member, Jon Cunliffe
- In a disruptive shock, hard to disentangle supply and demand hits
- Will not know for some time if coronavirus is a supply or demand shock
The headline remark tells it as it is, which brings me to my earlier thoughts about the dollar and what the market is pricing in about the Fed now.
This market is so used to demand shocks and buying the dip because it will pass and that central banks will intervene to help with that. But what happens when the market has to now deal with a potential supply shock instead? It isn't so straightforward.
If the virus is contained, I reckon this will prove to be something like a demand shock but as it threatens to be a major epidemic across the globe, zero percent or even negative rates will get you nowhere in trying to resolve the impact of the virus outbreak.
