It’s Not 9/11 or a Housing Crash. So What’s the Coronavirus Fiscal Playbook?

YOUR BEST NEWS ! Policymakers can’t prevent economic damage from the outbreak, but they can limit it and make a quick rebound more likely.

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Painkillers

President Trump said his administration would discuss with Congress several measures to ease the economic pain inflicted by the coronavirus, including a possible payroll-tax cut and help for hourly wage earners. Administration officials were planning to meet with congressional Republicans about the proposals on Tuesday. Mr. Trump said he would hold a news conference to lay out the proposals in more detail, Andrew Restuccia and Kate Davidson report.

Options: Trade adviser Peter Navarro—backed by Jared Kushner, the president’s son-in-law and senior adviser, and legislative affairs director Eric Ueland—argued in favor of pushing for a payroll tax cut now. On the other side, National Economic Council Director Lawrence Kudlow and Treasury Secretary Steven Mnuchin called instead for narrowly targeted measures aimed at helping workers without sick leave and businesses facing virus-related disruptions, the people said.

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The White House coronavirus task force holds a press briefing at 5:30 p.m. ET.

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TOP STORIES

Dusting off the Playbook

A global market rout could force the Federal Reserve to update its 2008 crisis playbook to prevent sharp market dislocations from turning an economic shock into a full-blown recession. The central bank took an initial step Monday to keep short-term funding markets operating by boosting the size of short-term lending operations, shelving its plans to gradually pare those offerings. Last week, officials delivered an emergency, half-percentage-point cut to its benchmark federal-funds rate. The Fed’s next scheduled meeting is March 18, and investors expect the Fed to cut rates again at that meeting, if not sooner. Investors are looking at whether and when the Fed might announce new actions to keep markets functioning smoothly and to avoid a deeper downturn in credit availability, Nick Timiraos reports.

“Fed rates back to zero and U.S. budget deficit of $2 trillion now seem just a matter of time.” —Phil Suttle, Suttle Economics

The coronavirus is becoming far more than a public-health problem. Eventually the crisis will pass, but a shock as big as this one will change political and economic assumptions in some fundamental ways. It is altering the very definition of a national-security threat, increasing the incentive for American companies to diversify supply chains away from China, illustrating the limits of central-bank powers and increasing respect for much-maligned government professionals, Gerald F. Seib writes.

Lockdown

Italy placed its entire national territory under quarantine, marking the most dramatic step by any country so far to contain the coronavirus epidemic. Facing the biggest outbreak of the virus outside China, Italian Prime Minister Giuseppe Conte said Italian authorities will allow travel to, from and within Italy only if it is demonstrably necessary for work or health reasons. The nationwide quarantine also means employees are urged to take vacation and stay home, bars and restaurants must close at 6 p.m., and virtually all public gatherings are banned. The effectiveness of the measures could influence whether other European countries follow suit if their coronavirus outbreaks reach similarly menacing proportions, Eric Sylvers and Giovanni Legorano report.

The new coronavirus is now close to becoming a pandemic, the World Health Organization said Monday. The WHO generally defines a pandemic as a disease that has become widespread around the world. The viral epidemic reached a new stage globally Monday, with confirmed cases outside China tripling over the past week, Jennifer Calfas, Betsy McKay and Chong Koh Ping report.

The global airline industry is facing its biggest challenge since 9/11. Bookings around the world are falling sharply. U.S. carriers are following Asian and European airlines in cutting flights, grounding planes and enacting draconian cost reductions. The International Air Transport Association estimates the virus could reduce passenger revenue world-wide this year by between $63 billion and $113 billion, or as much as 20%. By comparison, the Sept. 11, 2001, terrorist attacks cut airline revenues by 7%, or $23 billion, Alison Sider, Benjamin Katz and Doug Cameron report.

U.S. companies were already heading for record-low profitability in China as business conditions deteriorated and the country’s economy slowed to its lowest rate in decades. That position will be further challenged as these companies seek to absorb what could be a historic hit in the world’s second-largest economy and the epicenter of the novel coronavirus. The annual snapshot of business conditions, captured by the Beijing-based American Chamber of Commerce in China in a survey conducted in October and November last year, underscores how fragile conditions were for American companies before the Covid-19 epidemic began to come into public view in mid-January, Julie Wernau reports.

U.S. shale drillers are poised to be among the biggest losers in the oil-price war stoked by Russia and Saudi Arabia. Dozens of debt-addled companies were already facing financial difficulties even before U.S. benchmark prices plummeted 25% to $31.13 a barrel Monday, the largest drop since 1991. Now many of the shale companies that led the U.S. to become the world’s top oil and gas producer are in a fight for survival. Companies facing debt defaults will likely have to cut back on drilling and slash jobs if low prices persist for any length of time, Collin Eaton and Rebecca Elliott report.

The good, the bad, the ugly: U.S. consumers will benefit from cheaper gasoline. Morgan Stanley estimates the decline in oil prices may add as much as $125 billion to disposable income. But don’t be surprised if energy-sector employment drops and investment in energy-related structures and equipment—already weak—falls even further. That will ripple through the economy: The oil price collapse of 2015 pushed manufacturing into a mini-recession. And in 2020? “Putting it all together, we believe the cumulative decline in oil prices since the beginning of the year, if sustained, is enough to reduce real GDP growth by about 15 to 35bp,” Morgan Stanley economists said.

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WHAT ELSE WE’RE READING 

The novel coronavirus health crisis will have significant economic fallout. “Substantial targeted policies are needed to support the economy through the epidemic, keeping intact the web of economic and financial relationships between workers and businesses, lenders and borrowers, and suppliers and end-users for activity to recover once the outbreak fades. The goal is to prevent a temporary crisis from permanently harming people and firms through job losses and bankruptcies,” International Monetary Fund chief economist Gita Gopinath writes in a blog post.

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