Fed cuts rates in emergency move to blunt coronavirus impact

[webfact]

Fed cuts rates in emergency move to blunt coronavirus impact

By Lindsay Dunsmuir

 

U.S. Federal Reserve Chairman Jerome Powell speaks to reporters after the Federal Reserve cut interest rates in an emergency move designed to shield the world's largest economy from the impact of the coronavirus, during a news conference in Washington, U.S., March 3, 2020. REUTERS/Kevin Lamarque

 

WASHINGTON (Reuters) - The U.S. Federal Reserve cut interest rates on Tuesday in a bid to shield the world's largest economy from the impact of the coronavirus, but the emergency move failed to comfort U.S. financial markets roiled by fears of a deep and lasting slowdown.

 

Indeed, though Fed Chair Jerome Powell reiterated his view that the U.S. economy remains strong, he acknowledged that the spread of the virus had caused a material change in the U.S. central bank's outlook for growth.

 

The virus causes respiratory illness that has been fatal in an estimated 2% of cases, and governments and companies have shut schools and restricted travel and large gatherings in response, crimping factory output in China where the outbreak began and disrupting production of goods worldwide.

 

"The virus and the measures that are being taken to contain it will surely weigh on economic activity, both here and abroad, for some time," Powell said in a news conference shortly after the central bank said it was cutting rates by a half percentage point to a target range of 1.00% to 1.25%.

 

"We've come to the view now that it is time to act in support of the economy," he said. “I do know that the U.S. economy is strong and we will get to the other side of this; I fully expect that we will return to solid growth and a solid labor market as well.”

 

Still he acknowledged the outlook is uncertain and the situation "fluid."

 

The decision was unanimous among policymakers. It was the first rate cut outside of a regularly scheduled policymaker meeting since 2008 at the height of the financial crisis, underscoring how grave the central bank views the fast-evolving situation.

 

Just over a week ago most Fed officials said they expected the effects of the virus to be temporary and stuck to their view that after three rate cuts last year the U.S. economy was well-positioned to weather shocks.

 

"The questions now become whether, how much, and when the Fed might deliver further monetary policy easing," Oxford Economics analyst Gregory Daco wrote in a note. "If Fed officials deem that odds of an impending recession are elevated, they’ll continue to be very aggressive in cutting rates."

 

After the Fed's cut and initial jubilance on Wall Street over the early arrival of a rescue action from the central bank, losses in all three benchmark stock indexes deepened.

 

The yield on the 10-year U.S. Treasury dropped below 1% for the first time ever. Interest-rate futures traders priced in further Fed rate cuts in coming months.

 

"Normally, markets would welcome a rate cut, and they were hoping for it," said Peter Kenny, Founder of Kenny's Commentary LLC. "Now that we've got it, the question is what's next?"

 

With 90,000 cases worldwide in 77 countries and territories, the virus has upended global supply chains, with companies daily warning of hits to their sales and profits.

 

On Tuesday, the International Monetary Fund and World Bank canceled their April meetings in Washington, joining the list of organizations pulling the plug on planned events.

 

EARLY DECISION

The Fed's decision to cut interest rates before its scheduled policy meeting in two weeks reflects the urgency with which it feels it needs to act in order to prevent the possibility of a global recession, and opens the possibility that more action could come sooner than later.

 

Central bank easing can lubricate credit markets and boost demand by lowering the cost of borrowing. But, Powell noted, it cannot repair disrupted global supply chains or convince people to fly, attend meetings or even go to school, especially if local governments or companies bar such activities.

 

"We do recognize that a rate cut will not reduce the rate of infection, it won't fix a broken supply chain; we get that, we don't think we have all the answers," Powell said. Still, he said, it will help support "overall economic activity."

 

Powell had earlier on Tuesday taken part in a conference call with the top finance authorities from the world's seven largest advanced economies, which concluded with a statement that they would take all appropriate measures to support the global economy. At his news conference, Powell said the Fed was in active discussions with other central banks, and said future coordinated action could yet arrive.

 

Already there has been action by other central banks. Earlier on Tuesday, central banks in Australia and Malaysia cut rates and on Monday the Bank of Japan took steps to provide liquidity to stabilize financial markets there.

 

U.S. Treasury Secretary Steven Mnuchin applauded the Fed's decision, saying it would help the U.S. economy. In a tweet after the Fed move, President Donald Trump kept up what has been constant pressure on the central bank to do even more. "More easing and more cutting," he said.

 

(Reporting by Lindsay Dunsmuir; Writing by Ann Saphir; Editing by Dan Burns and Andrea Ricci)

 

-- © Copyright Reuters 2020-03-04

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[Somtamnication]

Good idea, but it gives us warnings that the future is going to be one hell of a roller coaster ride!

[legend49]

2 hours ago, Somtamnication said:

Good idea, but it gives us warnings that the future is going to be one hell of a roller coaster ride!

Aligns nicely with the November election, lol.

[lannarebirth]

This is the kind of socialism people seem to like. How many zombie companies will get to rollover debt when they should just be going out of business?

[zydeco]

Moe! Larry! Do something! Push buttons, pull levers, turn dials! 

[malibukid]

14 minutes ago, lannarebirth said:

This is the kind of socialism people seem to like. How many zombie companies will get to rollover debt when they should just be going out of business?

and Bernie makes them hysterical

[TopDeadSenter]

3 hours ago, Somtamnication said:

Good idea, but it gives us warnings that the future is going to be one hell of a roller coaster ride!

I was hoping they would hold rates. IMO it is too soon to lower them, now they have less arrows in their quiver and if it really hits the fan they have less options. The fed should be above panic and knee jerk reaction, this move shows they are above neither.

[albertik]

19 minutes ago, TopDeadSenter said:

I was hoping they would hold rates. IMO it is too soon to lower them, now they have less arrows in their quiver and if it really hits the fan they have less options. The fed should be above panic and knee jerk reaction, this move shows they are above neither.

Can always just print up some more $

[Nyezhov]

too soon

[worgeordie]

Can someone please explain why interest rates are so low,

I cannot remember the rates been so low in my lifetime,and

I am sure even into Medieval times the rates must have been

higher,all my life I have been a saver,never had any debt,NOW

it's not worth saving.

 

The other day I renewed my fixed term account at Bangkok Bank,

and was given .6025 % cannot remember the exact amount but .6 % and

some numbers after on that I have to pay tax, what is left does not even

cover inflation,so my cash is just melting away....slowly.

 

Everything is now aimed at helping those in debt,I cannot understand it,

Cash is no longer king, having debt is this way to go,when I first came

here a long time ago, I used to hawk my cash around different banks

looking for a better rate,you always got to see the Manager,and one

way or another,I always got .50 % 75 % extra,plus gifts, now they are

not interested, some will say put your money in this or that and get

more interest, at my age I would never be able to accrue what i have

now if it was lost.

 

Regards worgeordie

 

 

 

[RocketDog]

4 hours ago, webfact said:

Normally, markets would welcome a rate cut, and they were hoping for it," said Peter Kenny, Founder of Kenny's Commentary LLC. "Now that we've got it, the question is what's next?"

Indeed! What's next is cutting rates to zero or negative when the next crisis arrives, possibly very soon.

 

Also helps pay down the sovereign debt with cheaper money. Downside is of course that the money is cheaper. 

 

Taking away the punch bowl at this drunken spending party has never worked very well. 

 

Spend money, print money, let the party continue. Devalue the dollar being held as reserve currency by countries all over the world. 

 

When the world agreed at Bretton-Woods to let the USA manage the world's currency it had no idea how untrustworthy America truly is in this regard. 

[heybruce]

1 hour ago, TopDeadSenter said:

I was hoping they would hold rates. IMO it is too soon to lower them, now they have less arrows in their quiver and if it really hits the fan they have less options. The fed should be above panic and knee jerk reaction, this move shows they are above neither.

 

48 minutes ago, Nyezhov said:

too soon

Guess who disagrees:

 

" President Trump, who has been a vocal opponent of the Fed, responded to the rate cut on Twitter, calling for more cuts and further policy easing in order to maintain the United States’ global economic advantage. "   https://www.forbes.com/sites/sarahhansen/2020/03/03/fed-cuts-rates-to-combat-coronavirus-impact-on-markets-trump-calls-for-more-easing-and-cutting/#7f1947c5560e

 

So what if Trump is having some success on politicizing the Fed?  What could go wrong?

Edited March 4, 2020 by heybruce

[lannarebirth]

3 minutes ago, heybruce said:

 

Guess who disagrees:

 

" President Trump, who has been a vocal opponent of the Fed, responded to the rate cut on Twitter, calling for more cuts and further policy easing in order to maintain the United States’ global economic advantage. "   https://www.forbes.com/sites/sarahhansen/2020/03/03/fed-cuts-rates-to-combat-coronavirus-impact-on-markets-trump-calls-for-more-easing-and-cutting/#7f1947c5560e

 

So what if Trump is having some success on politicizing the Fed?  What could go wrong?

 

Guess who's about to refinance his property portfolio at new, lower rates?

[Eric Loh]

The market read into the big rate cut and  the FED’s panic mode and lack of confident of the economy and decided to unload on the DOW last night. The house of cards that the FED built is collapsing. 

[Nyezhov]

14 minutes ago, heybruce said:

Guess who disagrees:

Im never in lockstep with any politician, I have my own mind. 

 

How about you? Maybe reflexive opposition?

[heybruce]

1 hour ago, lannarebirth said:

 

Guess who's about to refinance his property portfolio at new, lower rates?

I'll do the same.  That doesn't mean it's a good idea to politicize the Fed.  It's also not a good idea to run up the Federal deficit when the economy is strong, as the Republicans have a habit of doing. 

 

There's a real possibility of a global recession in the near future.  Interest rates can't go much lower.  The deficit is already too high.  We are entering unknown territory.

[lannarebirth]

1 minute ago, heybruce said:

I'll do the same.  That doesn't mean it's a good idea to politicize the Fed.  It's also not a good idea to run up the Federal deficit when the economy is strong, as the Republicans have a habit of doing. 

 

There's a real possibility of a global recession in the near future.  Interest rates can't go much lower.  The deficit is already too high.  We are entering unknown territory.

Gee, I had no idea.

[heybruce]

1 hour ago, Nyezhov said:

Im never in lockstep with any politician, I have my own mind. 

 

How about you? Maybe reflexive opposition?

I don't have a reflexive opposition to a rate cut; I assume the people at the Fed know what they are doing, and hope they are not responding to political pressure.

 

I have a reflexive opposition to applying political pressure on the Fed.

[Eric Loh]

26 minutes ago, lannarebirth said:

Gee, I had no idea.

Not at all surprise that you have no idea but do have a look at the inverted bond yield. Paint a sobering picture of the economy ruined by the FED and the Trump administration. 
https://www.cnbc.com/2019/03/21/us-bonds-jobless-numbers-in-focus.html

[Berkshire]

33 minutes ago, heybruce said:

I don't have a reflexive opposition to a rate cut; I assume the people at the Fed know what they are doing, and hope they are not responding to political pressure.

 

I have a reflexive opposition to applying political pressure on the Fed.

Trump has been browbeating the Feds to cut rates.  So Powell cut rates.  But rather than sooth the markets, this rate cut reignited investors' fears of a slowing economy.  Which is why the stock market took a beating and the USD will as well.  Should not have listened to Trump.

[lannarebirth]

9 minutes ago, Eric Loh said:

Not at all surprise that you have no idea but do have a look at the inverted bond yield. Paint a sobering picture of the economy ruined by the FED and the Trump administration. 
https://www.cnbc.com/2019/03/21/us-bonds-jobless-numbers-in-focus.html

I look at this stuff for hours per day for the past 25 years. I was being facetious.

[zydeco]

Watch out, Jerome. You, Mnuchin, Trump, Kudlow, Kashkari, and all your banker buddies aren't going to have a place to hide after this market bubble gets through deflating. The villagers with the pitchforks will be coming after you, and get ready for very long terms in very cold jail cells

[Baerboxer]

5 hours ago, worgeordie said:

Can someone please explain why interest rates are so low,

I cannot remember the rates been so low in my lifetime,and

I am sure even into Medieval times the rates must have been

higher,all my life I have been a saver,never had any debt,NOW

it's not worth saving.

 

The other day I renewed my fixed term account at Bangkok Bank,

and was given .6025 % cannot remember the exact amount but .6 % and

some numbers after on that I have to pay tax, what is left does not even

cover inflation,so my cash is just melting away....slowly.

 

Everything is now aimed at helping those in debt,I cannot understand it,

Cash is no longer king, having debt is this way to go,when I first came

here a long time ago, I used to hawk my cash around different banks

looking for a better rate,you always got to see the Manager,and one

way or another,I always got .50 % 75 % extra,plus gifts, now they are

not interested, some will say put your money in this or that and get

more interest, at my age I would never be able to accrue what i have

now if it was lost.

 

Regards worgeordie

 

 

 

 

Alas my Geordie friend the world as changed. I remember having a nice meeting in Canary Wharf with HSBC managers and talking about investments that would pay 10%! Those days have long gone, as have the days of ThB 70+ to the GBP!                                                                                                            I still get much better rates here than I do in the UK or Offshore, but nothing to shout about.

 

The conspiracy theorists will be claiming it's all the plan of the hyper wealthy to create a debt economy in which the working and middle classes become enslaved by debt and the need to work to generate income. The abstract ones will point to Gurus like Pickering and say capitalism is dead, but have no clue what any alternative might be!

 

Have another Brown Ale and take the world in your stride sir!

[Redline]

Premature.  More money for corporations and the wealthy.  The world is now run by central bank manipulation.  Nearly all assets are overvalued, and the predictability of the system is no longer there.  Capitalism is at a precipice 

[Eric Loh]

16 minutes ago, Baerboxer said:

The abstract ones will point to Gurus like Pickering and say capitalism is dead, but have no clue what any alternative might be!

Capitalism is not dead. It just need a good balance between economic and socialism. There are good models like the Nordic and South China countries of Taiwan, South Korea and Japan. US capitalism failed in income equality and human rights. A tiny fraction of wealthiest is exploiting the system and getting rich with free money while the majority lives on & in debts. The bubble will soon burst. 

[jany123]

6 hours ago, TopDeadSenter said:

I was hoping they would hold rates. IMO it is too soon to lower them, now they have less arrows in their quiver and if it really hits the fan they have less options. The fed should be above panic and knee jerk reaction, this move shows they are above neither.

A knee jerk reaction? 

9 hours ago, webfact said:

It was the first rate cut outside of a regularly scheduled policymaker meeting since 2008 at the height of the financial crisis,

9 hours ago, webfact said:

U.S. Treasury Secretary Steven Mnuchin applauded the Fed's decision, saying it would help the U.S. economy. In a tweet after the Fed move, President Donald Trump kept up what has been constant pressure on the central bank to do even more. "More easing and more cutting," he said.

Lmao... thank crikey they are above listening to the trump and taking his advice on finance, then, hey? Anyway.... Given your above post, I trust you support the feds decision to ignore the trump... right?

[Brigand]

At least the US FED has rates to cut ...even though, I think 0.5% is a bit much a bit quick as the markets can be funny about stuff and might think it could be worse than stated if they have gone that far so quick etc. Places like the UK have no rates to cut really and they have had years to introduce rate normalization back in a bit but have gone always for the short term. One of the main reasons 2008 blow was softened was that they had rates of 5% to give them room to work ...should have gone back a bit even if it costed some.