Fed slashes rates, rips open crisis tool kit to cushion coronavirus blow

[webfact]

Fed slashes rates, rips open crisis tool kit to cushion coronavirus blow

By Howard Schneider, Lindsay Dunsmuir and Ann Saphir

 

FILE PHOTO: The Federal Reserve building is pictured in Washington, DC, U.S., August 22, 2018. REUTERS/Chris Wattie/File Photo

 

WASHINGTON (Reuters) - The U.S. Federal Reserve slashed rates back to near zero, restarted bond buying and joined with other central banks to ensure liquidity in dollar lending to help put a floor under a rapidly disintegrating global economy during the escalating coronavirus pandemic.

 

And in a dramatic move that underscored the depth of the economic threat as businesses shutter and potentially millions of jobs evaporate, the Fed encouraged banks to use the trillions of dollars in equity and liquid assets built up as capital buffers since the financial crisis to support firms and people whose lives have been upended by the virus.

 

"The effects of the coronavirus will weigh on economic activity in the near term and pose risks to the economic outlook. In light of these developments, the Committee decided to lower the target range," the Fed said, adding that it is "encouraging banks to use their capital and liquidity buffers as they lend to households and businesses who are affected by the coronavirus."

 

The Fed cut rates to a target range of 0% to 0.25% and said it would expand its balance sheet by at least $700 billion in coming weeks.

 

"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.

 

The Fed and other major foreign central banks also cut pricing on their swap lines to make it easier to provide dollars to financial institutions facing stress in credit markets. The Fed, the Bank of Canada, European Central Bank, Bank of England, Bank of Japan and Swiss National Bank had set up swap lines in the financial crisis.

 

It was the third time this month the U.S. central bank took emergency action outside of a regularly scheduled policy meeting to protect financial markets and the economy.

 

On March 3, it cut interest rates by a half of a percentage point and last week in the face of an accelerating market meltdown it injected cash into short-term funding markets and launched a wave of Treasury security purchases.

 

On Sunday, the Fed took further steps to boost liquidity in the U.S. financial system.

 

It lowered the primary credit rate by 150 basis points to 0.25 percent in order to encourage banks to tap its emergency lending window.

 

Depository institutions may borrow from this so-called discount window for periods as long as 90 days, pre-payable and renewable by the borrower on a daily basis, it said.

 

The Fed also said it would support U.S. banks that began to tap the capital and liquidity buffers they built up in the aftermath of the 2008 financial crisis and would reduce reserve requirement ratios to 0% effective on March 26.

 

"This action eliminates reserve requirements for thousands of depository institutions and will help to support lending to households and businesses," the Fed said.

 

Policymakers were not due to hold their next interest-rate setting meeting until Tuesday and Wednesday.

 

President Donald Trump called the actions "good news" that "makes me very happy."

 

(Reporting by Lindsay Dunsmuir; Editing by Nick Zieminski)

 

-- © Copyright Reuters 2020-03-16

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[zydeco]

Utter panic at the Fed. Spineless Jerome taking orders from a chimp in the White House. Worldwide Depression starts today.

[Grumpy John]

Tough times ahead for sure.  Once said long ago "When the eagle sneezes the whole world catches a cold. "

[pookondee]

Yep

Encourage more who haven't got money to get into a hopeless debt trap they will never be able to repay..

At the same time, steal more money off the few who still have a bit.

 

and it all funnels down to the bankers and the 1%ers

 

what could possibly go wrong?

[englishoak]

Stupid move, the fed has reacted wayyyy too soon and left nothing in the tank for the coming months..... 

Edited March 15, 2020 by englishoak

[lannarebirth]

I hear helicopters.

[gargamon]

Trump has forced the fed to keep interest rates low so the economy would keep strong in the hope that it will get him elected again. The problem with that is that if there is a recession(and theres a big one coming) they have no tools to help alleviate it. The US is screwed with this moron in the White House. He was such a successful businessman, look at all the failures, Trump casinos, Trump airlines, Trump steaks, Trump vodka, Trump University, etc. The next failure, USA.

[lannarebirth]

5 minutes ago, gargamon said:

Trump has forced the fed to keep interest rates low so the economy would keep strong in the hope that it will get him elected again. The problem with that is that if there is a recession(and theres a big one coming) they have no tools to help alleviate it. The US is screwed with this moron in the White House. He was such a successful businessman, look at all the failures, Trump casinos, Trump airlines, Trump steaks, Trump vodka, Trump University, etc. The next failure, USA.

 

Everyone who has ever owned a business knows that goodwill though somewhat intangible, can be a very large part of your enterprise's value. Trump has squandered all of USA Inc's goodwill and loaded up the balance sheet with debt for no discernible benefit other than the further enrichment of the monied classes. 

[tonray]

Here we go again.....CD and savings accounts back to near Zero whilst credit card and personal loan rates remain near old highs....haven't we figured it out yet folks....this isn't for the common man...this is again another opportunity for hedge funds to add leverage, corporations to refinance debt to lower rates by issuing new bonds and using proceeds to retire old debt, all intended to keep the owners of 90% of the financial assets in the pink while they squeeze your savings....another lost decade for elder savers and young borrowers

[mtls2005]

I love the smell of Socialism in the morning.

 

Easy to be carefree, what with the tax breaks, and running on less than 30 days credit, when you know Uncle Sam has your back.

 

 

[legend49]

2 hours ago, gargamon said:

Trump has forced the fed to keep interest rates low so the economy would keep strong in the hope that it will get him elected again. The problem with that is that if there is a recession(and theres a big one coming) they have no tools to help alleviate it. The US is screwed with this moron in the White House. He was such a successful businessman, look at all the failures, Trump casinos, Trump airlines, Trump steaks, Trump vodka, Trump University, etc. The next failure, USA.

Bye bye November win.

[samran]

3 hours ago, gargamon said:

Trump has forced the fed to keep interest rates low so the economy would keep strong in the hope that it will get him elected again. The problem with that is that if there is a recession(and theres a big one coming) they have no tools to help alleviate it. The US is screwed with this moron in the White House. He was such a successful businessman, look at all the failures, Trump casinos, Trump airlines, Trump steaks, Trump vodka, Trump University, etc. The next failure, USA.

Basically. 
 

In the not to distant past the basic job of a central bank was to keep inflation in check and ensure stable monetary conditions. 
 

Now with the absence of sensible leadership in government the Fed is been left to provide it.

Edited March 16, 2020 by samran

[Eric Loh]

And in respond, the Dow’s future is projected to drop by more than 1,000 pts. Way to go Donny. 

[Vigilante]

The system was insolvent long before Trump came to power.

You may have missed the lessons of the 2006 crisis

Even the much maligned Soros said in the aftermath of those days..

'The system is not fixed'

The low (Fed) rates kept everybody pouring money in the stock exchange

12 years later it's a gargantuan bubble...quadrillions in derivatives and other voodoo 'financial instruments'

The system is insolvent...most govts are insolvent.

 

The word 'reset' is been heard more often in the last year or two.

The virus crash/mayhem offers the perfect cover.

My 2 cents

[Berkshire]

3 hours ago, englishoak said:

Stupid move, the fed has reacted wayyyy too soon and left nothing in the tank for the coming months..... 

Trump pressured the fed to cut rates because in his pea-brain, he thinks the Stock Market would love it.  He doesn't see how this will cause further panic in the markets as this is a signal the economy is collapsing.  And now the Fed has used up all their bullets and when the recession does come, they've got nothing left. 

[englishoak]

41 minutes ago, samran said:

Basically. 
 

In the not to distant past the basic job of a central bank was to keep inflation in check and ensure stable monetary conditions. 
 

Now with the absence of sensible leader in government the Fed is been left to provide it.

Question.. 

 

You dont think this has been a zombie market since 08 anyway ?. With all the fake value and QE and bailouts it must all come down crashing at some point.. not just JPM, but all major US banks are ending stock buybacks now ... Corporate run on banks already started last week.  Boeing shocked the investing community when it announced that due to "market turmoil", it would immediately draw down on its full $13.825 revolving credit facility, thats unprecedented. Others no doubt will be following suit on drawdowns as they too will need liquidity just to survive.   Negative rates are coming next and then there will be no point joe public keeping cash in the bank but for bills. Until markets are allowed to crash/unwind as cycles demand and the market finds fair value again ( probably overshooting as usual ) things are imo going to get a lot worse from here on for quite some time. 

 

Sub 10,000 maybe as low as 5000 Dow anyone ? 

 

 

Edited March 16, 2020 by englishoak

[englishoak]

17 minutes ago, Berkshire said:

Trump pressured the fed to cut rates because in his pea-brain, he thinks the Stock Market would love it.  He doesn't see how this will cause further panic in the markets as this is a signal the economy is collapsing.  And now the Fed has used up all their bullets and when the recession does come, they've got nothing left. 

 

Trump isnt the problem just the catalyst, the systemic corruption of the banks and fake market created value is the root cause pumped for decades, its all wayy overvalued anyway imo, it HAS to come crashing down to reset, nothing can repay these debts already let alone whats coming. 

[samran]

42 minutes ago, englishoak said:

Question.. 

 

You dont think this has been a zombie market since 08 anyway ?. With all the fake value and QE and bailouts it must all come down crashing at some point.. not just JPM, but all major US banks are ending stock buybacks now ... Corporate run on banks already started last week.  Boeing shocked the investing community when it announced that due to "market turmoil", it would immediately draw down on its full $13.825 revolving credit facility, thats unprecedented. Others no doubt will be following suit on drawdowns as they too will need liquidity just to survive.   Negative rates are coming next and then there will be no point joe public keeping cash in the bank but for bills. Until markets are allowed to crash/unwind as cycles demand and the market finds fair value again ( probably overshooting as usual ) things are imo going to get a lot worse from here on for quite some time. 

 

Sub 10,000 maybe as low as 5000 Dow anyone ? 

 

 

Good question, one that I don't have anywhere near a complete answer to.

 

I leave the stock market and my pension to my fund manager. I'll leave monetary questions to people smarter than me. Blind faith...maybe, but I'll take their decisions over that of an elected politician, particularly of the populist variety.

 

Having said that, I've got a preference for companies with low leverage and excellent cash flow above most everything else. Beyond that, if there is a structural/demographic factor, then I guess certain businesses will always make sense. (Personally I don't carry to much debt - a small mortgage - and my business is entirely self sufficient and I'd never consider debt to run it).

 

That's a different question from valuations of course which is what you are getting at. My only response to that is, if you are in the market and have been for a long time, then eventually all valuations are relative. It only matters most to those who are just entering and those who are exiting for good.

Edited March 16, 2020 by samran

[lannarebirth]

45 minutes ago, Berkshire said:

Trump pressured the fed to cut rates because in his pea-brain, he thinks the Stock Market would love it.  He doesn't see how this will cause further panic in the markets as this is a signal the economy is collapsing.  And now the Fed has used up all their bullets and when the recession does come, they've got nothing left. 

 

I think Trump is just trying to give the impression that he can pressure the Fed.  He jawbones them, then creates the catostrophic condition that requires them to act on his jawboning. Todays action by the Fed is not representative of what we know now, which means there's something we don't know yet. I expect we'll know it very soon, in a day or two. There's a big shoe waiting to drop out there. A hocky stick graph in new virus cases, Martial Law, forced quarantines on a regional or national scale, suspension of primaries leading to the General election? Something. We are doing both too much and too little. It doesn't jibe, so something big is coming.

[Susco]

55 minutes ago, Berkshire said:

Trump pressured the fed to cut rates because in his pea-brain, he thinks the Stock Market would love it.  He doesn't see how this will cause further panic in the markets as this is a signal the economy is collapsing.  And now the Fed has used up all their bullets and when the recession does come, they've got nothing left. 

Stock market news live: Stocks futures plunge after Fed unveils emergency stimulus

 

https://finance.yahoo.com/news/stock-market-news-live-updates-march-16-2020-220735000.html

[bristolboy]

1 minute ago, Susco said:

Stock market news live: Stocks futures plunge after Fed unveils emergency stimulus

 

https://finance.yahoo.com/news/stock-market-news-live-updates-march-16-2020-220735000.html

Funny, because Trump confusedly believes that the stock market accurately tracks the health of the economy. So by doing what he wants, the Fed has precipitated the kind of price drop that Trump feared. 

[Berkshire]

4 minutes ago, Susco said:

Stock market news live: Stocks futures plunge after Fed unveils emergency stimulus

 

https://finance.yahoo.com/news/stock-market-news-live-updates-march-16-2020-220735000.html

The Fed is also planning more QE to the tune of around $700 billion.  Where the heck is the US gov getting all this money?  Rhetorical question as we're going further and further into debt.  Trump is going for the all-time record of highest deficit ever recorded in a single fiscal year. 

[samran]

4 minutes ago, Berkshire said:

The Fed is also planning more QE to the tune of around $700 billion.  Where the heck is the US gov getting all this money?  Rhetorical question as we're going further and further into debt.  Trump is going for the all-time record of highest deficit ever recorded in a single fiscal year. 

But it will be a great and beautiful deficit. One of the best...

[otherstuff1957]

So, how long before we start seeing negative interest in the US?  Will it be days, weeks or months?

 

Trump has been pressuring the Fed to keep interest rates low to keep the economy looking healthy.  Now that the inevitable correction has started, there's no place to go but to less than zero!

Edited March 16, 2020 by otherstuff1957

[bristolboy]

4 hours ago, gargamon said:

Trump has forced the fed to keep interest rates low so the economy would keep strong in the hope that it will get him elected again. The problem with that is that if there is a recession(and theres a big one coming) they have no tools to help alleviate it. The US is screwed with this moron in the White House. He was such a successful businessman, look at all the failures, Trump casinos, Trump airlines, Trump steaks, Trump vodka, Trump University, etc. The next failure, USA.

Whatever Trump's faults are, and they are legion, I don't think the blame for this should lie at Trump's door. At least not insofar as compelling the Fed goes. What is to blame is the disproportionately large and increasing share of the economy owned by the wealthy. As all liquidity accumulates it's only natural much of it will chase whatever is considered safe and that consequently rates plummet. Which is why T-bills carry such low interests. Anyway, rates are already so low that the stimulus effect of this rate cut will be virtually nil. 

[englishoak]

3 minutes ago, samran said:

Good question, one that I don't have anywhere near a complete answer to.

 

I leave the stock market and my pension to my fund manager. I'll leave monetary questions to people smarter than me. Blind faith...maybe, but I'll take there decisions over that of an elected politician, particularly of the populist variety.

 

Having said that, I've got a preference for companies with low leverage and excellent cash flow above most everything else. Beyond that, if there is a structural/demographic factor, then I guess certain businesses will always make sense. (Personally I don't carry to much debt - a small mortgage - and my business is entirely self sufficient and I'd never consider debt to run it).

 

That's a different question from valuations of course which is what you are getting at. My only response to that is, if you are in the market and have been for a long time, then eventually all valuations are relative. It only matters most to those who are just entering and those who are exiting for good.

 

Fair enough, the question wasnt fully answerable i know. We are indeed well into uncharted territory, I cant help but think Trillions tapped into a computer isnt this time going to cut it for long... I just cant see the scale of the bailouts that are going to be needed being possible.. Of course they could add a few zeros to the dollar or issue trillion dollar bonds but lets be honest, there will be no buyers but the fed for its own bonds or bailouts...Where would all the taxes come from ? what interest rates ? not possible from what I can see. 

 

I doubt any fund manager has much of a clue anymore tbh, the couple ive known gave up, got out or just follow the trends... 

 

It is probably best to be as debt free as possible, i know I am but if it all goes south its also very possible with mass bankruptcies debts, especially if banks much will have to be written off or down as uncollectable..

 

And this virus pandemic has only just begun..... yeesh. Deflation time I think is coming, at least for the short term during the pandemic for most things, if youve a business thats still open its time to cut your prices before competitors do, if only to pay the bills and stay afloat.

 

Hard times indeed, hope your business stays good Samram i mean that. 

 

[bristolboy]

58 minutes ago, englishoak said:

Question.. 

 

You dont think this has been a zombie market since 08 anyway ?. With all the fake value and QE and bailouts it must all come down crashing at some point.. not just JPM, but all major US banks are ending stock buybacks now ... Corporate run on banks already started last week.  Boeing shocked the investing community when it announced that due to "market turmoil", it would immediately draw down on its full $13.825 revolving credit facility, thats unprecedented. Others no doubt will be following suit on drawdowns as they too will need liquidity just to survive.   Negative rates are coming next and then there will be no point joe public keeping cash in the bank but for bills. Until markets are allowed to crash/unwind as cycles demand and the market finds fair value again ( probably overshooting as usual ) things are imo going to get a lot worse from here on for quite some time. 

 

Sub 10,000 maybe as low as 5000 Dow anyone ? 

 

 

I guess this is a case of throwing lots of things at the wall and hoping something will stick. The rise in the stock market under Trump actually makes a lot of sense. He slashed taxes, so dividends rose sharply. The value of the stock was further increased because of massive buybacks. What doesn't make sense, and what Trump supporters mostly don't understand, is that these big rises in the stock market don't accurately reflect the growth in the economy. It's mainly a gift to the wealthiest who own most of the stocks.

[Berkshire]

5 minutes ago, bristolboy said:

I guess this is a case of throwing lots of things at the wall and hoping something will stick. The rise in the stock market under Trump actually makes a lot of sense. He slashed taxes, so dividends rose sharply. The value of the stock was further increased because of massive buybacks. What doesn't make sense, and what Trump supporters mostly don't understand, is that these big rises in the stock market don't accurately reflect the growth in the economy. It's mainly a gift to the wealthiest who own most of the stocks.

Trump supporters don't understand a lot of things.  When Trump leaves the WH after four years of raping and pillaging the US government for his own personal benefit, these Trump supporters will be worse off than when he started.  So will America.  But we will persevere. 

[spidermike007]

I felt like the economy was nowhere near as strong as it appeared, and as they claimed, for the past year or two. Sure, unemployment numbers were healthy (if you discount the fudging of the numbers) and the stock market was strong (if you take into account the multi trillion dollar giveaway, in the form of a tax break). But, it was way overblown, and real estate prices were not sustainable. So, even before Corona, the financial system was stressed and overvalued. Now, we are seeing a long due correction. I predict the DOW at 15,000 to 18,000 by years end, a weakening of the dollar, continued low oil prices, and unemployment rising to over 5%.

 

And for certain, an end to Trump's time in office. That, is the silver lining in all of this. 

 

[samran]

16 minutes ago, englishoak said:

Hard times indeed, hope your business stays good Samram i mean that

Cheers mate - appreciate it.