While cancellations and postponements of public activities and curtailment of leisure and business travel may slow the coronavirus, it is taking its toll on consumer spending and general economic activity. These restrictions will force exposed businesses to curtail operations, lay off workers and possibly strain to service debts. The coronavirus shock has raised the specter of a recession for the first half of this year. Economists at JPMorgan Chase expect output to fall by an annual rate of 2% in the first quarter and another 3% in the second quarter. The reality is that the necessary steps to slow and/or contain the virus restricts economic activity and dampens consumer confidence.

Central banks, the Treasury and Congress have an array of tools to soften the impact. Although interest rates are near or below zero with not much bandwidth for further cuts, low yields will help national governments borrow to expand their fiscal stimulus. The purpose is to offset as much contraction in demand as possible. As of this writing the Fed added $500 billion to each of its one-month and three-month repurchase operations, is committed to buying $700 billion in Treasury bonds and mortgage-backed securities, on top of additional funding for overnight and two-week repos. This addition is a substantial injection in short-term liquidity. The Fed has also promised significant purchases of longer-term maturities across the yield curve, which in effect is a reintroduction of Quantitative Easing, a tool where the Fed purchases bonds with cash providing banks with additional money supply to make loans.