Coronavirus Fears and Macroeconomic Expectations

34 Pages Posted: 9 Mar 2020 Last revised: 2 Apr 2020

See all articles by Carola Binder

Carola Binder

Haverford College - Department of Economics

Date Written: March 8, 2020

Abstract

The Federal Reserve cut interest rates by 50 basis points on March 3, 2020, in response to concerns about the coronavirus (COVID-19). On March 5 and 6, I conducted an online survey of over 500 U.S. consumers that asked about their attention to, concerns about, and responses to the coronavirus, their awareness of the Fed's policy move, and their inflation and unemployment expectations. I then provided respondents with information about the Fed's policy announcement, and re-elicited inflation and unemployment expectations. Most consumers were somewhat or very concerned about effects of coronavirus on the U.S. economy, their health, and their personal finances; 28% had cancelled or postponed travel and 40% purchased food or supplies in response to these concerns. About 38% were aware that the Fed had cut interest rates. I show how concerns and awareness of the rate cut depend on consumer characteristics and news sources. Greater concern about coronavirus is associated with higher inflation expectations and more pessimistic unemployment expectations. Provision of information about the Fed announcement leads some consumers to become more optimistic about unemployment and revise inflation expectations downward, consistent with recent research showing that many consumers associate bad times with high inflation.

Keywords: Coronavirus, Covid-19, Federal Reserve, Inflation expectations, Consumer sentiment

JEL Classification: D12, D83, D84, E31, E52, E58

Suggested Citation

Binder, Carola, Coronavirus Fears and Macroeconomic Expectations (March 8, 2020). Available at SSRN: https://ssrn.com/abstract=3550858 or http://dx.doi.org/10.2139/ssrn.3550858

Carola Binder (Contact Author)

Haverford College - Department of Economics ( email )

Haverford, PA 19041
United States

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