Folks, we are living in uncertain times.
Perhaps even Biblical times (and that would be the book of the Bible that starts with the letter “R” and comes last).
Even though the stock market soared nearly 2,000 points on Friday, I feared it was a sucker’s bounce.
I fear the economic impacts of this virus will be absolutely devestating.
Folks, you don’t have to have a degree in economics to understand that we have never seen ANYTHING like this.
All major sports leagues shut down.
NCAA tournament shut down.
Travel industry nearly gone.
Now they are shutting down entire cities, including restaurants.
Folks, just ONE of these things in the past has been enough to send the economy into a tailspin, but all of them together?
And on top of a huge pile of debt that has only been building since 2008?
Recipe for disaster.
But that’s not just my opinion, that is apparently the opinion of the Federal Reserve, who just cut rates by a point to near zero in an attempt to use the last ammo it had agains this economic crash.
While rate cuts normally boost an economy, a rate cut can’t fix a broken supply chain or entire cities and industries being shut down.
And I fear the economy will look at the drastic rate cut as a vote of no confidence, leading to a serious market crash.
I’m not here to scare you, but this is reality.
We could be in for trouble in the short term.
Fox News had more info:
The Federal Reserve on Sunday slashed interest rates by a full percentage point to near zero and said it would buy $700 billion in Treasury securities, an aggressive step to insulate the U.S. economy from the coronavirus pandemic.
“The coronavirus outbreak has harmed communities and disrupted economic activity in many countries, including the United States,” the Federal Open Market Committee said in a statement. “The Federal Reserve is prepared to use its full range of tools to support the flow of credit to households and businesses.”
The benchmark federal fund rate is now at a range of 0 to 0.25 percent, down from a range of 1 to 1.25 percent. The cut essentially brings the nation’s interest rate to zero -- something that President Trump has repeatedly pressed for over the past year.
The historically low interest rates, which not been at this level since the 2008 financial crisis, are expected to remain until the economy recovers from the recent downturn.
"The Committee expects to maintain this target range until it is confident that the economy has weathered recent events and is on track to achieve its maximum employment and price stability goals," the Fed said in its Sunday evening statement.
The Fed also said that it will buy at least $500 billion in Treasury securities and $200 billion in mortgage-backed securities over the coming months, a program known as "quantitative easing."
Earlier this month, Powell announced an emergency 50-basis-point cut to the benchmark federal funds rate, sending it to a range of just 1 percent to 1.25 percent. It marked the first time since the financial crisis that the Fed has reduced its key rate outside of scheduled policy-setting meetings.
And from CNBC:
The Federal Reserve, saying “the coronavirus outbreak has harmed communities and disrupted economic activity in many countries, including the United States,” cut interest rates to essentially zero on Sunday and launched a massive $700 billion quantitative easing program to shelter the economy from the effects of the virus.
The new fed funds rate, used as a benchmark both for short-term lending for financial institutions and as a peg to many consume rates, will now be targeted at 0%-0.25% down from a target range of 1% to 1.25%.
Facing highly disrupted financial markets, the Fed also slashed the rate of emergency lending at the discount window for banks by 125 bps to 0.25%, and lengthened the term of loans to 90 days.
Despite the aggressive move, the market’s initial response was negative. Futures pointed to a decline of some 900 points at the Wall Street open Monday morning.
The discount window “plays an important role in supporting the liquidity and stability of the banking system and the effective implementation of monetary policy ... [and] supports the smooth flow of credit to households and businesses,” a separate Fed note said.
The discount window is part of the Fed’s function as the “lender of last resort” to the banking industry. Institutions can use the window for liquidity needs, though some are reluctant to do as it can indicate they are experiencing financial issues and thus sends a bad message.
The Fed also cut reserve requirements for thousands of banks to zero. In addition, in a global coordinated move by centrals banks, the Fed said the Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank, the Federal Reserve, and the Swiss National Bank took action to enhance dollar liquidity around the world through existing dollar swap arrangements.
The banks lowered the rate on these swap line loans and extended the period for such loans. Fed Chairman Jerome Powell is scheduled to hold a press conference via telephone at 6:30 pm ET. The actions by the Fed appeared to be the largest single day set of moves the bank had ever taken, mirroring in many ways its efforts during the financial crisis that were rolled out over several months. Sunday’s move includes multiple programs, rate cuts and QE, but all in a single day.