Market Pulse
March 15, 2020

Global Fiscal Stimulus Scorecard: The Cavalry is Coming, but Slowly & Arguing About Which Horse to Ride.


Market Pulse

Global Fiscal Stimulus Scorecard: The Cavalry is Coming, but Slowly & Arguing About Which Horse to Ride.

Global Fiscal Stimulus Scorecard: The Cavalry is Coming, but Slowly & Arguing About Which Horse to Ride.

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March 15, 2020


Monetary policy has been exhausted. Now, we turn toward fiscal stimulus and market support policies. This is taking place globally in an uncoordinated manner. Similar to the financial crisis in 2008, this is a messy process because it involves politics. But in our view, this is something elected officials need to do; the central banks cannot do it alone. Fiscal rescue policies typically follow this pattern:

  • It moves slowly at first, but not fast enough for what the markets demand.
  • Initial plans are often not enough, also disappointing the markets.
  • The markets sell-off further, signaling back to politicians to do more.
  • Politicians eventually do more.
  • This creates a risk-asymmetry, where the upside potential is greater than the potential downside after the crisis event passes, that is, the market assigns value to price levels versus selling indiscriminately

What has been done so far: Fiscal Stimulus Scorecard

United States

  • The Federal Reserve (Fed) cut policy rates 100bps to 0.0% - 0.25%. The Discount Window borrowing rate was lowered by 150bps putting the upper target at 0.25
    • Banks are “encouraged” to use the Discount Window as a source of funding to meet client needs. The effectively removes the stigma of using this source of funding.
    • FX swap lines are “encouraged" to be used by global central banks at a reduced rate of OIS+25bps. This is an effort to reduce demand for US dollars by foreign entities.
  • The Fed added approximately $1.5Tr in liquidity to the repo market to aid in proper functioning of US Treasury Market
  • $700Bn in Quantitative Easing (QE). Asset purchases comprising $500Bn U.S. Treasuries and $200Bn Mortgage Backed Securities
  • Regulatory relief for US Banks to extend credit to the real economy.
    • The Fed has reduced the reserve requirement ratio for banks to 0% effective March 26, the beginning of the next reserve maintenance period.
    • Bank capital and liquidity buffers: The Fed states that U.S. banks are well capitalized, the largest holding $1.3Tr in common equity and $2.9Tr high quality liquid assets. These capital and liquidity buffers are designed to support the economy in adverse situations. The Fed will support firms that choose to use their capital and liquidity buffers to lend and undertake other supportive actions, according to the Fed’s statement released March 15, 2000.
  • Fiscal stimulus: Healthcare-related measures passed in Congress on March 14, highlights of which are: free testing for the coronavirus, emergency paid sick days, emergency paid leave for those unable to work due to the virus, expanded unemployment insurance and expanding food assistance programs.
  • However this stimulus falls short because it does not address industry-specific support for sectors of the economy hardest hit by the corona virus. Why? We believe the reason is political. Many lawmakers want to avoid TARP-like (Troubled Asset Relief Program) that supported the private sector for political reasons.
  • Nevertheless, a small and mid-sized business credit support facility is essential. This has been a feature of other global fiscal stimulus and it should be no different for the U.S. Putting politics aside, small business accounts for approximately 65% of U.S. employment, which directly translates to income and consumption and consumption is approximately 70% of GDP. Thus in order to support GDP, politicians need to back small and mid-sized business support facilities.
  • We expect another fiscal support program geared to business in the near term, but the markets will be under stress until this happens.

Fiscal Policy Options

Trump Pelosi & Schumer Other Ideas


  • Temporary payroll tax cut
  • Tax or other relief for travel & hospitality industries
  • Loan assistance for small businesses
  • Paid sick leave

Under consideration

  • Relief for geographic areas most affected
  • Paid sick leave
  • Enhanced unemployment insurance
  • Expand food security
  • Equip frontline workers
  • Free coronavirus testing
  • Assist with cost of treatment
  • Curb price gouging
  • Increase medical capacity


  • $1,000/$500 rebates (adult/children)
  • Extend unemployment insurance
  • Funding for states
  • Increased Medicaid matching
  • Paid leave
  • School lunches


  • Capex subsidies
  • Ease NOL limitations
  • Loan guarantees for travel/hospitality
  • Employee retention credits

Source: Cornerstone Macro as of 3/12/2020



United Kingdom

  • Bank of England cut 50 bps to 0.25%
  • £100Bn TFSME (Term Funding for Small- and medium-sized enterprises (SMEs))
  • Fiscal Policy Committee (FPC) cut counter cyclical buffer requirement from 1% to 0%
  • £30Bn Fiscal Stimulus package, 1.3% of GDP, equivalent of 125bps of easing


  • A$ 17.6Bn fiscal package to support growth, greater than expected
  • 75% of which ($12.8Bn) directed toward businesses

Europe (ECB) (Note: ECB cannot control fiscal stimulus, so Europe is likely to stay most stressed)

  • New and Improved TLTRO (Targeted Long Term Refinancing Operation, a lending facility for SMEs)
  • Priced at favorable rates (repo rate less 25bps) and for banks that keep SME lending portfolios stable (Deposit rate less 25bps)
  • €120Bn additional net asset purchases to year end

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Managing Director
Global Fixed Income Team


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