Pimco Says Policy Makers Need to Do More to Prevent Meltdown

(Bloomberg) -- Pacific Investment Management Co. joined a growing group of big investors warning that a global recession looks increasingly inevitable in the face of the coronavirus pandemic and more needs to be done to stem a crisis.

“Fiscal and monetary policy makers around the world will have to pull out all the stops to prevent what currently looks like an inevitable recession from turning into a depression, and financial markets to go from a drawdown to a meltdown,” wrote Joachim Fels, Pimco’s global economic adviser, in a note.

The Federal Reserve swept into action on Sunday to try to save the U.S. economy from the fallout of the coronavirus, slashing its benchmark interest rate by a full percentage point to near zero. But a slide in risk assets Monday in Asia despite the Fed’s move highlights the challenges policy makers face in combating market turmoil even with dramatic action.

Historic Sell-Off Leaves Credit Hard to Impress Despite Fed Move

A global recession in response to supply disruptions and a sudden halt in demand for services appear to be “a foregone conclusion,” the money manager said. Pimco and others are calling for wider reaching measures beyond monetary policy easing. A very large fiscal response to support individuals and businesses that are adversely affected by the crisis is needed, Fels said.

Apart from facilitating more expansionary fiscal policy, central banks will also have to ensure that credit can continue to flow to companies and households, he wrote.

To contact the reporter on this story: Denise Wee in Hong Kong at dwee10@bloomberg.net

To contact the editors responsible for this story: Andrew Monahan at amonahan@bloomberg.net, Ken McCallum

©2020 Bloomberg L.P.