Aggressive policy action by the Federal Reserve is "obviously not" enough to help the U.S. avert a downturn caused by the coronavirus outbreak, said Joseph Stiglitz, a Nobel laureate in economics. "Given the nature of the uncertainties, given the nature of the collapsing incomes of so many people, it can help stabilize financial markets at best and it's clear that it didn't do that," Stiglitz told CNBC on Tuesday. On Sunday, the Fed slashed interest rates to near-zero and announced a $750 billion asset-purchasing program to shelter the economy from the impact of the virus. Despite that, the markets crashed Monday — with the Dow suffering its worst day since the "Black Monday" market crash in 1987 and its third-worst day ever.

While the situation might have been worse without the Fed's moves, "clearly it didn't stabilize the stock markets," said Stiglitz, who is a former chief economist at the World Bank. The problem is that "this is a different kind of crisis than normal crises. It's just not a problem of aggregate demand," he said. "Because of the disease, people are shutting down their businesses. In the United States, restaurants in New York City have been closed," said Stiglitz. "More demand is not going to save that particular problem." The spread of the coronavirus disease, formally known as COVID-19, has disrupted the global economy and supply chains as countries implement strict border controls, massive city-wide lockdowns and quarantines in order to contain the virus. There are now at least 168,019 cases of the coronavirus worldwide, according to data from the World Health Organization. At least 6,610 have died from the disease.

Even though financial institutions have assured that their positions are strong amid the market rout, Stiglitz said no bank would be spared from the impact of a major economic downturn even if it is adequately capitalized. "People wouldn't be able to repay their loans, people wouldn't be taking out new loans, businesses wouldn't be taking out new loans. The business model of banks is very sensitive to the business cycle," he said.

Give help to targeted segments