Fed cuts half point in emergency move amid spreading virus

https://www.bloomberg.com/news/articles/2020-03-03/fed-cuts-rates-half-point-in-emergency-move-amid-spreading-virus

by a2h • 6 years ago

364 468 6 years ago

bloomberg.com

vmchale• 6 years ago

Wish the coronavirus czar had the same urgency...

timroman• 6 years ago

Bringing a fire truck to a bank robbery

ohazi• 6 years ago

Eh... maybe more like bringing a SWAT team to a brush fire.

rolltiide3• 6 years ago

what part of the prior analogy made you think this one was better, and so much better to actually post?

cynical, but genuinely curious

I like the imagery of fire hydrants spraying water on an issue that is ongoing and unresolved while the vaults become hollow and worth nothing.

nine_zeros• 6 years ago

Accurate assessment

justinzollars• 6 years ago

How does a half-point help us if Costco is out of toilet paper?

gonzo41• 6 years ago

You can afford to install a bidet

Symmetry2• 6 years ago

The Coronavirus is going to harm the economy no matter what. But if the Fed acts correctly it can prevent compounding effects like an increase in unemployment that leads to a further decrease in production.

m3kw9• 6 years ago

More like using one bucket of water when you have a massive bush fire.

seoulbran• 6 years ago

3-2-1, bull market returns. (I hope)

lisper2• 6 years ago

Why? Are you retired? Because if you aren't, if you're working and putting money into a retirement plan, you are much better off with a bear market, especially one like this that is practically guaranteed not to run for years. When you're a buyer you want prices to be low.

war1025• 6 years ago

Not all people buy stocks just for retirement.

z9e• 6 years ago

Perhaps this person bought stocks outside of their 401k when it was low and is excited about another run of high returns.

wonderwonder5• 6 years ago

Except people lose their jobs in a bear market.

repsilat2• 6 years ago

This assumes a return to trend, right? If stocks are temporarily depressed you can get them at a discount.

If stock prices are permanently lower as a result, though, it's certainly not good for you. And, believe it or not, this is probably the more accepted idea -- that price movements are memoryless, that we shouldn't subscribe to the gamblers fallacy (that down today means up tomorrow), and that being happy for a price drop is a form of timing the market, which is frowned upon.

I don't fully buy it, but it's worth thinking about.

usaar3332• 6 years ago

Disagree; you are best off if the economy is growing and doing well. Stocks being cheap is only secondary.

marcinjachymiak• 6 years ago

Rate cut was already priced in yesterday. CME's FedWatch already had really high odds for this exact cut.

ptyyy3• 6 years ago

We're basically running out of tools to combat an actual financial crisis. https://www.investopedia.com/terms/l/liquiditytrap.asp

thedudeabides52• 6 years ago

Hey look on the bright side, we have another 100bps left in rates and then QE4.

After that, yeah then it gets tough, but then again, maybe we get some actual fiscal stimulus which maybe buys the US some China style infrastructure!

andreilys• 6 years ago

We will likely see negative interest rates before the Fed decides to raise

Symmetry2• 6 years ago

We could always just end the practice of paying interest on excess reserves which the Fed started when they thought banks were collapsing but there wasn't any economic downturn back in 2008, so they needed to get the banks not to lend out the money they were pumping into them somehow. The Fed's inflation models have been predicting higher inflation than we've seen ever since. Currently the interest on required reserves (IORR) and interested on excess reserves (IOER) are both 1.6%, well above the Fed lending rate of 1.25%.

bluedevil2k3• 6 years ago

A fiscal stimulus? Yes, let's go even more into debt than we already are.

liuliu2• 6 years ago

It can go negative, or Fed can do another round of QE, there are plenty of tools. The real question is whether the deficit can grow indefinitely without consequences, and if this is a moral hazard (e.g. no risk priced in borrowing).

cm21872• 6 years ago

The European experience has shown that negative rates aren't really working, other than killing the local banking system.

unhashable2• 6 years ago

It can grow larger than people realize.

As long as other countries do business in USD and keep buying US debt, the party keeps going.

With fiat, you can spend as much as the combined purchasing power of all your citizens through money printing.

When you’re the reserve currency, that pool is extended to the purchasing power of many many countries.

That’s probably why, from a strategic POV, the US must remain the largest military force and continue to police the world.

With dollar hegemony, the US might even introduce new ways (like MMT) of sipping purchasing power of participants.

OscarCunningham3• 6 years ago

What does the deficit have to do with the Fed? QE doesn't grow the deficit.

JumpCrisscross2• 6 years ago

We're basically running out of tools to combat an actual financial crisis

Not really. This was extensively explored following the Great Depression, in part by Ben Bernanke, which is how we got QE. In summary, the Fed can buy more than just short-dated government bonds.

Moreover, "liquidity trap" doesn't refer to the central bank running out of tools per se. It refers to investors calling a central bank's bluff.

A classic example is a stagflation-facing central bank cutting rates. The cut spurs inflation. Investors figure that will force the central bank's hand into a rate hike shortly. As a result, they hold.

The cut thus fails to have an impact because the bank is perceived to be constrained. That doesn't apply here.

tossAfterUsing3• 6 years ago

That doesn't apply here.

So long as the appearance of inflation never occurs.

pbrb• 6 years ago

I'm pretty worried about this. I don't think this rate cut makes any sense. You can't stimulus away a virus.

pmart123• 6 years ago

There seem to be economic ways to help curtail it though.

- sick pay for hourly employees for next year

- backstop airlines, event planning and travel businesses in some capacity

- offer Netflix rewards for vaccines, testing methods or other applicable things

- cover cost of insurance for massive testing

skybrian2• 6 years ago

Yes but it could avoid some bad effects.

If a company temporarily can't manufacture something due to supply chain disruption, they could lose a lot of money and might need to borrow some. Getting by until things recover just got cheaper.

I'd guess there are probably similar issues for restaurants, the tourist industry, maybe construction?

But that assumes they're credit-worthy. It wouldn't help a company that can't borrow.

munificent2• 6 years ago

Trump isn't trying to stimulus away a virus. He couldn't possibly care less about COVID-19 unless he personally were to get infected.

He's just trying to stimulus himself a re-election.

scottmcf• 6 years ago

We are in/at the start of an actual financial crisis, people just haven't internalized that yet.

mywittyname2• 6 years ago

Who could have known that using debt to purchase back stock for the purposes of artificially increasing company value without building value would cause a crisis?

asaph2• 6 years ago

I'll bite. How can you tell?

atq21194• 6 years ago

Only because the toolset is artificially restricted for ideological reasons.

Fiscal responses (having the government spend actual money, either on things like infrastructure it by just handing it out to the population, which will then largely spend that money as they see fit) rather than monetary policy responses (reduce rates and hope that people will borrow more) are known to work well in most cases.

The Corona virus situation is slightly different than the financial mess of 2008 because it involves actual potential supply constraints. This means that a higher rate of inflation may have to be accepted temporarily. But inflation has arguably been far too low for far too long anyway...

gdubs5• 6 years ago

Keynes famously said you could hire people to dig ditches and it would stimulate the economy.

However, if we were to take aggressive action on Climate Change, there’s a lot of potential jobs there. A massive potential stimulus. Also, you know, public funding of basic research which could explore, I don’t know, pandemic response, new therapeutics, etc.

Like you said, ideological barriers are what’s keeping us stuck. But before we went all in on finance we had a pretty epic run last century of productivity fueled by public investment (think 1940-1970).

mindslight4• 6 years ago

inflation has arguably been far too low for far too long anyway...

Do you not need a roof over your head, health insurance, a car, college education, etc? Inflation has been rampant, it's just not apparent in manufactured goods because the actual cost of production dropped rapidly with offshoring and technological progress. Without significant inflation, we would have seen a steady march down of consumer prices, as happened in computing.

chewz2• 6 years ago

toolset is artificially restricted for ideological reasons

Not in Hong-Kong. [1]

[1] https://edition.cnn.com/2020/02/26/economy/hong-kong-budget-...

ilaksh2• 6 years ago

We are 100,000 years overdue for a major upgrade to the information technology known as money.

mindslight4• 6 years ago

Because they've already been expended to keep the "growth" party going indefinitely, rather than ever letting things cool off. This includes 2008 - a short hiccup and then full speed ahead, culminating in VC's filling sidewalks and gullies with a glut of consumer goods, hoping for some kind of eventual profit. Eventually the bubble has to pop - when it's not allowed to do so relatively casually, it will do so catastrophically. When it's not allowed to do so at it's own time, it will do so at the worst time.

gscott• 6 years ago

The best tool is to let the virus shake things out in the economy. Well managed companies will survive those that are not go by the wayside.

pastor_elm• 6 years ago

The Fed also said in the statement that the “fundamentals of the U.S. economy remain strong.”

So why cut the rate? Doesn't make any sense.

Angostura• 6 years ago

Because you can have a fundamentally strong economy, but nonetheless having up to 1/5th of you workforce off simultaneously (UK govt worse case) could cause business difficulties?)

wonderwonder5• 6 years ago

Because someone at the top with a limited grasp of economics but a great understanding of campaigning insisted on it.

lonelappde3• 6 years ago

The Fed is independent of the Executive except at appointment time.

Mountain_Skies• 6 years ago

Sounds like the Federal Reserve needs a backbone if they're so willing to change a major component of fiscal policy due to a few words.

ptyyy3• 6 years ago

Political optics. Current POTUS's claim to success rests, in part, on a high performing financial sector. If the market tanks or stagnates, he no longer has that as a talking point.

Loughla• 6 years ago

I agree with the political optics part, and that the POTUS current claim to success is finances, but I 100% disagree that if the market stagnates or tanks completely that he no longer has that talking point.

If the market tanks, all the talking heads will just blame the upcoming election, and claim that markets and market makers are scared of a Democrat being elected. It doesn't change the talking points for the President at all, I imagine. He still claims the moral victory, if only he hadn't been undercut by those thieves on the other side.

That sort of thing is standard now. Claim success until you can't, then deny any involvement and blame someone else. That's politics, baby.

shrimpx• 6 years ago

“The market being in the red is a hoax perpetrated by the Democrats...”

whatshisface• 6 years ago

The Fed is not under the President's authority and is probably not filled with Trump fans. The system for better or worse is designed to resist political motivations. (For better because "political," for worse because "political" is the low-valence word for "democratic.")

standardUser• 6 years ago

Bowing to pressure from King Trump.

Edit: Trump has loudly and consistently attacked the Federal Reserve for scheming against him and trying to sabotage the economy, something completely unprecedented considering the Fed is famously intended to be independent. He ratcheted up these complaints even further since the outbreak of Convid-19. Then, the Fed takes the unusual step of cutting rates between sessions (for the first time since the start of the Great recession) despite a strong economy.

Edit #2: Now Trump has lashed out again, calling the Fed's move insufficient.

ilikehurdles• 6 years ago

So has it been all but confirmed that the Fed is no longer an independent office?

ars• 6 years ago

Trump attacks all sorts of things. If people do things it's not always a result of him.

lawn• 6 years ago

They said the exact same thing in 2008, only a few months before the collapse.

It's fair to say, that the FED has no clue.

spectramax2• 6 years ago

That's a glib assessment of the Fed. In hindsight, every prediction will have cases that, in your view, would fit "They have no clue.".

vnchr• 6 years ago

The Dow finished up 1,294 points yesterday, making it its best one-day point gain on record.

howlin• 6 years ago

It's best to follow the SP500 rather than the Dow. The former is much more representative of the whole market. And it's best to follow market movement in percentage rather than points. Points inflate over time as the nominal value of the market indexes climb.

stevenwliao• 6 years ago

I can't wait for the SP500 to replace the Dow in news reporting.

lonelappde3• 6 years ago

"point gains" is a vanity metrics. Percentage matters

cat199• 6 years ago

and what's the 3 day / 5 day trend?

giant gains are not so important after giant losses, this is just celebrating volatility.

govg• 6 years ago

The DJIA is not as good a metric compared to say, S&P500. It considers a 1$ move in any of the constituents in the same manner, so a stock worth 200$ moving up by 1$ is given the same importance in terms of points change in the index value as a stock worth 2$ moving up by 1$ (whereas fundamentally speaking, the second movement is far more interesting than the first).

wonderwonder5• 6 years ago

We are burning all of our fuel to ensure we are running at record levels and when a real problem rears its head, we are going to be dry.

muttled• 6 years ago

The fallout will either fall on a second term or during someone else's first term. Either way the administration doesn't care.

SN76477• 6 years ago

Exactly this.

katmannthree• 6 years ago

November is still more than six months away. Given how quickly COVID-19 spreads I think our economy will likely be feeling the pain long before the election.

harryh2• 6 years ago

This is not accurate. See: https://www.themoneyillusion.com/the-actual-ammunition-issue...

scarmig4• 6 years ago

Keeping the party going by drinking rubbing alcohol.

What would be hilarious/terrible is if this attempt to juice the markets doesn't prevent a sea of red at EOD.

rhexs• 6 years ago

This will further increase housing prices, no? How much more unobtainable for the average American could they possibly get?

I suppose negative interest rates will let us know shortly!

thedance4• 6 years ago

Don’t worry, literally every single one of the presidential candidates in the democratic primary wants to “build wealth” by making housing ever more expensive. It’s practically state policy to make it impossible for a first-time buyer.

elicash2• 6 years ago

The entire point of housing policy at the local level, where it matters, is to make housing more expensive because people's wealth is in their homes and they're relying on housing prices to rise steadily. Renters have less political power.

holtalanm2• 6 years ago

at the risk of getting into a political debate on the internet: I hadn't heard this. Do you have any sources backing up this claim?

sailfast• 6 years ago

Mortgage rates track more closely to 10 year Treasury notes and not by the Fed's discount rate based on my findings of late and tracking mortgages over the past few years.

The Fed funds rate doesn't really do much to near-term mortgage rates (at least it hasn't to me, as a consumer). The market dip in Treasuries (openly traded) depressed yields which drove mortgage rates much lower before the fed acted at all. Lower rates allows buyers to purchase a lot more home than they otherwise would have which has a good chance of being higher than any rise in the market price - especially for less frothy areas.

If you're talking about prices going up as institutional investors buy up property obviously disregard the above as it's a different dynamic.

airstrike15• 6 years ago

This reduces the interest on your mortgage

landryraccoon• 6 years ago

If you already own a home. Otherwise housing is just more expensive. Lower interest rates mean houses can be sold at higher prices for exactly the reason you gave.

hsnewman• 6 years ago

I'm retired and mostly not in the market. I won't invest in the market while it is overpriced. With such low interest rates, what is a safe investment?

airstrike15• 6 years ago

Defensive, boring, high-dividend stocks?

sand_castles• 6 years ago

There is no interest without risk.

I suggest Iranian, Argentinian bonds if you really want to get that blood flowing.

xeromal• 6 years ago

I wonder if syrian bonds are available?

lonelappde3• 6 years ago

invest in a new innovation that cures or mitigates covid-19, or cash and take your lumps. Money is a shared delusion; you can't force it to grow or retain value. Enjoy the net win factoring in the last 10years.

fourstar• 6 years ago

BTC.

misja1112• 6 years ago

If you believe the market is overpriced you could consider investing in long term put options.

companyhen2• 6 years ago

BTC and ETH is worth a few % of your portfolio depending on your risk tolerance. :)

natex• 6 years ago

The business cycle has been on the down turn for a few months now (though folks are just now beginning to notice it). Historically, Treasuries, long-term GOV'T bonds, and gold perform well during this part of the cycle. If you must have equities, utilities and REITs perform well but only in relation to other S&P stocks.

twic• 6 years ago

Structured products!

More or less, this is a deal with an investment bank where they take your money and hold onto it for a fixed term, while watching the level of a stock market index. If the index ever gets above a pre-determined "trigger level", they give you your money back early, with interest calculated at a fixed rate. If it never gets above the trigger level, then at the end of the term, they give you back your money, without interest. Unless the index has fallen below a "barrier level", in which case you don't get all your money back - you lose it in proportion to the fall in the index.

So, it's a bit like investing in the stock market - if the market goes up, you make money, if it goes down, you lose money - but rounded to fixed levels.

Here's an example:

http://www.marianainvestments.com/adviser/contact/view-plan/...

The term is 10 years, the index is the FTSE 100, the barrier level is 70%; there are three options for interest rates and trigger levels, and the safest, option 1, pays 8.55%, and has trigger levels like this:

  Year   Level
     2  102.5%
     3  100.0%
     4   97.5%
     5   95.0%
     6   92.5%
     7   90.0%
     8   87.5%
     9   85.0%
    10   82.5%

So basically, if you think the FTSE 100 will hold its current level over ten years, or even decline slightly, you get a 8.55% per annum payout.

Or, if you think that it will make it to 105% of its current level, you could go for the full-blooded option 3, which pays out 14% per annum.

And bear in mind that a fall in the index only matters at the end of the term. If there's a crash, and the index has fallen to 50% of the current level by year 3, the product keeps running. If the index recovers to 87.5% of the current level five years after that, the product pays out! It literally cannot go tits up.

airstrike15• 6 years ago

From what I gather after spending more time than I'm willing to admit listening to every finance talking head out there, the consensus on the street seems to be that this will result in a temporary market recovery followed by the continued deterioration of stock prices given that fiscal or monetary* policy can't really affect the real economy in the near term* i.e. if the supply chain is indeed impacted due to COVID-19, no amount of fiscal or monetary* stimulus can make up for the time / productivity losses in the near term*

On the margin, I'm still slightly bearish on the whole situation due to the combination of the virus' absurdly high infection rate[0] and its long incubation period (I'll let each one of you be the judge of how long that is...)

[0] https://duckduckgo.com/?q=infection+rate+sars+vs+coronavirus...

ithinkinstereo2• 6 years ago

if the supply chain is indeed impacted

Is there any question? 80% of the Chinese workforce has been sitting on the sidelines since mid-January. Production is just barely ramping up and I don't think we'll see full capacity until well into April, provided that COVID19 is truly contained/managed.

Edit: not sure about the downvotes. Here's a source about Foxconn production: https://twitter.com/onlyyoontv/status/1234855310428430337

airstrike15• 6 years ago

The question at the moment is whether the impact is prolonged enough to affect more than 1-2 quarters worth of business, and how quickly we can recover from this. Can Foxconn plants in China work double time to make enough iPhones for Fall / Winter sales? Your guess is as good as mine...

yumraj3• 6 years ago

And, if they try to ramp up the production too quickly, will we see a return of Covid-19 due to people in close proximity again?

JumpCrisscross2• 6 years ago

fiscal policy can't really affect the real economy

Fiscal policy (e.g. the government buying tanks) absolutely affects the real economy.

The central bank doesn't control fiscal policy. It controls monetary policy. Monetary policy also affects the real economy, just indirectly.

airstrike15• 6 years ago

Sorry and thank you – I meant to say fiscal or monetary specifically in the near term, meaning supply chain disruptions take much longer to undo. I've edited my post accordingly.

samvher4• 6 years ago

Right. And from what I understand, even if monetary policy does not directly solve virus or supply chain issues, it can make life easier for corporations loaded with debt (there are many) which might get into trouble as the economy deteriorates.

lottin2• 6 years ago

Monetary policy is about increasing or decreasing the money supply. The argument is that it cannot have long-term real effects because if it did we would all be incredibly rich, since it costs nothing to increase the money supply by whatever amount. Every underdeveloped nation would simply increase their money supply and poverty would be a thing of the past.

sev02• 6 years ago

Will it bring back toilet paper at Costco?

wefarrell• 6 years ago

Fiscal/monetary policy has a real effect on the economy but only on the demand side.

ISL• 6 years ago

The incubation period is not 25-30 days. The mean incubation period is 5-6 days, range 1-14 days.

Source: Page 12, paragraph 2. https://www.who.int/docs/default-source/coronaviruse/who-chi...

airstrike15• 6 years ago

See https://www.medrxiv.org/content/10.1101/2020.02.06.20020974v...

The median incubation period was 3.0 days (range, 0 to 24.0 days)

Edited my post to include that source

adnzzzzZ• 6 years ago

According to this the range is 0-24 days with a median of 3 days. https://www.medrxiv.org/content/10.1101/2020.02.06.20020974v...

y-c-o-m-b• 6 years ago

I think there's been news floating around that the virus incubation period could be longer, which is probably where the OP got that number from. See here: https://www.reuters.com/article/us-china-health-incubation/c...

I don't see that supported by the CDC either though

Blahah• 6 years ago

retracted based on feedback

Seenso2• 6 years ago

The incubation period is not 25-30 days. The mean incubation period is 5-6 days, range 1-14 days.

There are case reports of it being far longer than 14 days:

https://www.reuters.com/article/us-china-health-incubation/c...

A 70-year-old man in China’s Hubei Province was infected with coronavirus but did not show symptoms until 27 days later, the local government said on Saturday, meaning the virus’ incubation period could be much longer than the presumed 14 days.

onlyrealcuzzo3• 6 years ago

Range is between 1-14 days for what percentage? With what level of confidence?

There are several cases where the incubation period has been over 20 days. Maybe 90% of cases incubate for 14 days or less. Maybe 99% for less than 20.

14 days is not some magic limit.

rsync• 6 years ago

" ... I'm still slightly bearish on the whole situation due to the combination of the virus' absurdly high infection rate[0] and its ridiculous ~25-30 day incubation period ..."

You're right to highlight those aspects of the virus and I find them noteworthy as well.

However, the statistics I am most interested in is mortality rate and rate of asymptomatic infections.

I note with interest that among the 700+ infected on the cruise ship, there were 6 deaths as of yesterday - and this is among a relatively geriatric population. So, perhaps we see a mortality rate of <1% among a greater risk population.

fauigerzigerk6• 6 years ago

What I'm most interested in is the hospitalisation rate and if we can slow down infections enough for hospitals to be able to cope.

I think the death rate will ultimately depend on whether everyone who needs hospital treatment can get it. And that's why I think the Diamond Princess may not be representative of what happens in the real world.

Retric• 6 years ago

The cruse ship had 135 infected on February 10th, jumping to 634 on February 20th. So, most of those 700 are recent infections. The actual long term death total for the cruse ship is unknown, but should include people who died in their home country after returning.

The good news is assuming you trust China’s numbers new infections are down massively from a February 2nd peak. Deaths in China are also down significantly but less so, again assuming you trust their numbers.

airstrike15• 6 years ago

According to my fancy math based on numbers from Johns Hopkins COVID-19 dashboard[0][1], we're closer to a 7% mortality rate

[0] direct link: https://www.arcgis.com/apps/opsdashboard/index.html#/bda7594...

[1] posted to HN: https://news.ycombinator.com/item?id=22475060

bryanrasmussen2• 6 years ago

there's still 36 serious/critical. I have a hard time believing all of them will be fine. https://www.worldometers.info/coronavirus/#countries

lancyH• 6 years ago

among the 700+ infected on the cruise ship, there were 6 deaths

Your death count is incorrect. Several deaths occurred after cruise members returned to their home country, and are currently counted as deaths in their home country instead of the cruise ship.

Take for example: 78-year-old man in Perth - got infected on the cruise ship - but counted as a death in Australia.

istorical• 6 years ago

Most deaths occur in week 3 or week 4 if they make it that far.

stanfordkid• 6 years ago

It reduces volatility due to a unknown and unquantifiable risk in the short term to prevent panic. Obviously if the apocalypse hits the market will still tank, but if catastrophe doesn’t happen then the unneeded loss is prevented.

WhompingWindows2• 6 years ago

You should edit that 24 days fact, it's simply incorrect and will spread misinformation.

airstrike15• 6 years ago

Wouldn't really call it "simply incorrect" given multiple sources pointing to very long incubation periods, but I've edited it out since people are having knee jerk reactions to it

downerending4• 6 years ago

The actual distribution simply isn't known at this point.

headmelted2• 6 years ago

I think they need emergency stimulus.

Cutting rates further isn’t going to protect businesses without footfall from going under - they need propped up on a wide scale until the virus peaks and passes.

Theoretically a cut to zero might help but only if you’re giving guaranteed credit lines to every small business to get them through the worst of it - but how would that even work?

quotemstr3• 6 years ago

You don't think fiscal policy can affect the economy? Direct spending will result in increased production up to the productive capacity of the economy, won't it?

airstrike15• 6 years ago

You can't produce anything if you can't buy parts

umanwizard• 6 years ago

If that were really the consensus among traders, it would be priced in, by definition.

onlyrealcuzzo3• 6 years ago

The Fed's job is supposed to be to keep inflation stable. Inflation is as stable as it's ever been. If stock prices go down, that means nothing to inflation. Somehow, since Greenspan, the Fed's job evolved to include pumping up asset prices to benefit asset owners (the top 5% own 80% of assets).

mxschumacher• 6 years ago

The fed's target is 2% inflation, not stability of the inflation rate. You could say the relative stability of the value of money is a goal

seirl• 6 years ago

Wrong. The Fed has a dual mandate, they have to keep inflation and unemployment stable. Recessions are bad for employment, it turns out.

tssva• 6 years ago

I see 3 things driving the market now. An overdue market correction, reasonable reaction to supply chain issues and an irrational reaction to the virus.

A temporary boost to the market gives more time for the true long term impact to the supply chain to play out. It may turn out that the boost only gave a short respite but it may also turn out that it saved the market unneeded turmoil.

A short term boost also gives people a chance to take a breath, step back and take a more rational approach.

OCASM9• 6 years ago

What's irrational about the reaction to the virus?

AnimalMuppet8• 6 years ago

A short term boost does not do much for the overdue market correction, though, other than delay it a bit longer.

hurricanetc5• 6 years ago

People keep saying that responses are irrational but we know next to nothing about this virus. We don’t have a firm understanding of how deadly it is, how long it takes to incubate, how easily it can be spread, or what long term damage it could do to people who recover.

There are reports of kidney damage and damage to fertility among men who have recovered. Are those true? We don’t know. We have no idea.

The rational response to a deadly virus with so many unknown factors is to hunker down, avoid mass gatherings, and exercise other precautionary measures. These precautionary measures mean fewer people traveling, going to the movies, going out to dinner, attending conferences, etc. There is nothing the Fed can do to blunt this reaction besides pour money into Coronavirus research and hope they find a vaccine or remedy before it drags the economy into a recession.

Spooky23• 6 years ago

The 4th is a need to prop up the economy as much as possible through November.

beamatronic• 6 years ago

There’s one thing the virus cannot beat: social distancing.

downerending4• 6 years ago

Unclear. Can't find a link, but I recall reading that if you were within 50m (?) of a norovirus patient when they vomited, you had a noticeable chance of catching the bug yourself.

jp555• 6 years ago

The Roaring Twenties came after the Spanish Flu... (& WW1)

I jest, but I wonder about the difference between "natural" complex-systems-behavior recessions, and those that come from acute stimulus like war and pandemic.

Something like: is there a difference between people wanting to produce and consume but being "artificially" held back, versus an average lack of confidence in the markets causing slow-down?

NicoJuicy5• 6 years ago

I was bearish yesterday, but looking at the raw data seems more reasonable ( spent a lot of time reading and analyzing).

The statistic influencers currently are China, South Korea and Iran.

Then it seems to help that people are more aware and numbers seem to be dropping. I'm short-term bearish, although it could change with an extreme outlier within the EU.

It also helps that I can see what a big corporation ( where I work) is doing and I don't see any panic. Rather creating awareness.

I'm also aware of the most vulnerable companies ( travel + flight) where a friend works and it seems to be okay, as in: "not as bad as the news seems to suggest", but nonetheless carefull.

samvher4• 6 years ago

I don't know, Italy is doing pretty poorly with 79 dead on 160 recovered (2502 total cases). Only the numbers in China really seem to be dropping, and I wonder how that will hold up when people get back to work.

This is not going to be the end of the world as we know it but I think it will take quite some more time before it's behind us.

asdfman1232• 6 years ago

You also must consider that we're in the dark because of poor testing right now. A coworker pointed out that infection levels may be "leveling off" simply because the testing is rate limited.

capkutay2• 6 years ago

I hate to say I'm 'bullish' about a situation where people will die, but the fact that 80% of cases are mild or asymptomatic bodes well for the working economy. conferences, travel, and tourism will take a huge hit, but I don't see other industries being significantly hurt.

if this was more like SARS with a 10% IFR, with equally high mortality rates among young people, then I would be very worried. But this virus seems to be the opposite. most factory workers fit in that cohort of people in that the virus effects the least so I don't see supply chains suffering.

danenania2• 6 years ago

"most factory workers fit in that cohort of people in that the virus effects the least so I don't see supply chains suffering."

I think supply chains are more affected by government attempts to contain the virus (quarantines/social distancing/restrictions on travel and trade) than by the virus itself, no?

tossAfterUsing3• 6 years ago

this will result in a temporary market recovery followed by the continued deterioration of stock prices

that's what zerohedge calls "the dead cat bounce" right?

mech12342• 6 years ago

Interest rates have been on a secular decline over the course of the last century. Different economists have described this via various terms- "savings glut" is the one I like the most (even though I don't like Krugman). Right now there is so much saved cash out there looking to be lent out that any project looking for financing can find it for cheap.

The Fed does not keep interest rates low in a vacuum. There is an auction system that determines real rates. If the Fed is not able to sell all their bonds at the target rate, they have to adjust.

In the long run, I think we will see:

1. (at risk of calling this bull market a "new normal") P/E ratios for stock will continue to climb in a secular fashion. Low returns from the alternative investment of bonds will dictate high P/E ratios.

2. Debt financing will remain cheap. Low interest rates signal cash that is desperate to find a place to park it.

3. Government debt will remain popular and affordable. This is a win for Keynesians.

4. Secular low interest rates are an indicator of a stable and mature economy, which is good. The bad part is that they signal a world where obvious available capital investment projects are missing- we seem to have picked the low hanging fruit.

5. Next recession the U.S. will hit the zero lower bound, and we will see lots of QE and/or nominal negative interest rates through some institutional mechanism.

6. Increasing government deficits look better when interest rates are low.

7. Speculative: Deficit spending can increase indefinitely if real interest rates are below 0 (aka nominal rates are below inflation). To put it in other terms: Any deficit spending is free money up until the point that it causes inflation to rise about the nominal interest rate.

budlightvirus• 6 years ago

What does "secular" mean to you?

ejstronge• 6 years ago

'Secular' has multiple definitions; this one refers to a non-cyclical trend:

https://www.lexico.com/en/definition/secular

mywittyname2• 6 years ago

From context, the OP is using it to mean, over a period of time.

mech12342• 6 years ago

In Economics, secular essentially refers to long-term trends regardless of boom-and-bust business cycles. The focus is on the long term. In the context of economics it has nothing to do with religiousness.

A secular trend is a variable that evidences a consistent pattern within a given period of time. It is a statistical tendency that can be easily identified and it is not subject to seasonal or cyclical effects. (https://www.myaccountingcourse.com/accounting-dictionary/sec...)

JMTQp8lwXL3• 6 years ago

The Fed does not keep interest rates low in a vacuum. There is an auction system that determines real rates. If the Fed is not able to sell all their bonds at the target rate, they have to adjust.

To my understanding, there is a real public market, however the Fed essentially manipulates by participating to the degree necessary to achieve the target interest rate. When the overnight repo rate went up, the Fed hopped in to 'fix' the rate. You will never have enough assets to compete with the Fed's goals. They have limitless capacity to participate in the market.

ithinkinstereo2• 6 years ago

Most of the risks to the economy posed by COVID19 are supply side. How is a rate cute going to help? It seems like the main consequence of this in the near term is an increase in inflation.

flyGuyOnTheSly• 6 years ago

Does this mean the meeting on march 18th (where there was almost a 100% chance of a rate cut going through) is not happening anymore? [0]

I can't tell if they've just not yet updated that page.

[0] https://www.cmegroup.com/trading/interest-rates/countdown-to...

Donald• 6 years ago

The market is pricing in an additional rate cut at that meeting

aazaa2• 6 years ago

For those saying the Fed is running out of ammunition, study what the Bank of Japan has done.

It owns close to 80% of the Japanese ETF market currently, with no end to the expansion of balance sheet in sight.

After buying long treasuries, it's not unreasonable to imagine the Fed buying stocks, either individual issues or ETFs. The President would be for it, and it would be hard to drum up any opposition to it in congress.

Not only that, but rates on long treasuries have stayed negative for long periods of time in other countries. It's an open question how negative long treasuries can go, but the evidence suggests we're not even close to the limit.

Recessions are politically unacceptable in today's world. Buy stocks. Buy treasuries. Do so with wild abandon, because the Fed has your back. Just watch out for the moment when the whole thing jumps into reverse and no amount of market manipulation will stop the bleeding.

rbinv• 6 years ago

What would be the endgame here?

scarmig4• 6 years ago

A long-lived Nikkei-style "bull run."

aazaa2• 6 years ago

I suspect it will nurture a massive structural problem few today would understand or care much about. It will be allowed to grow unabated because, frankly, there will be bigger fish to fry.

Maybe a little like subprime leading up to 2008. The problem was written off by just about everyone who bothered to look, until something snapped and it was the only thing that mattered.

We may be seeing the start of this in the repo market, which once again had a convulsion today. I doubt many care about it or really understand it, and that goes double for policy makers.

mullingitover• 6 years ago

What's the term for when the government owns all the industries?

znt• 6 years ago

Stock bubble -> Stock crash -> More QE -> QE fails -> Bond crash & Govt crisis -> Currency crash -> Commodities skyrocket -> Civil chaos

Erlich_Bachman3• 6 years ago

Just default on the debt far far down the line. Seing as how USD is still the reserve currency and they can still print, very far down the line. Keep borrowing from the future like there is no tomorrow until then, hopelly making sure the music doesn't stop playing during your political mandate period so you can get blamed for it.

resters• 6 years ago

I think there are multiple useful lenses for thinking about this:

- Signaling that the Fed is willing to get involved to stabilize market prices (by making capital cheaper) is meant to calm markets and give participants comfort about making decisions today that they could optionally wait to decide. If everyone goes into a holding pattern, liquidity is impacted, which can cause all sorts of unpredictable price movement.

- it is a wealth transfer from one group to another. The beneficiaries are existing debtors (mostly firms) and firms who benefit most from cheaper capital.

- it gives the Fed slightly more influence over the outcome of the 2020 election, since reversal of the Covid-19 rate decrease can be timed to create desirable optics as the election approaches. Much research has been done about the most critical time period prior to the election when "it's the economy, stupid" is most true.

mbesto• 6 years ago

For those saying the Fed is running out of ammunition, study what the Bank of Japan has done.

Oh you mean the economy that has been stagnate for 20 years?

scarmig4• 6 years ago

If I were a Japanese retail investor in 1990 in his 30s, what would have been the best strategy? Just stay out of domestic markets and focus on areas with potential for growth?

lazyier2• 6 years ago

Bingo. We have a winner.

heartbeats4• 6 years ago

That's just how it is with democracy. You can either be the politician who didn't really do anything for the economy, or you can be the politician who plunged the country into a recession.

Nobody wants to rip off the band-aid, even if it's infected underneath.

blackearl• 6 years ago

Better than the hyper growth and subsequent pop they went through in the 80s and 90s

WhompingWindows2• 6 years ago

That's probably much more to do with their population pyramid than their monetary policy...they are a rapidly aging, insular society. If your working age population is decreasing, it's going to be nearly impossible to grow your economic output, especially when you turn away all immigrants.

rtkwe2• 6 years ago

Stagnant or not the real question is what would have happened if the bank wasn't holding all those stocks? That is did buying all those stocks/ETFs successfully prop up the economy that would have otherwise gone into a recession or worse or did it cause the stagnation?

adrianN2• 6 years ago

GDP per capita doesn't look stagnant: https://tradingeconomics.com/japan/gdp-per-capita

chewz2• 6 years ago

Bank of Japan had been achieving new heights of monetary policy year after year for the last 30 years with little impact on real economy.

coliveira6• 6 years ago

BoJ is the biggest proof that the traditional notion that creating money generates inflation is incorrect. The issue is that inflation is narrowly defined, and will only happen when people buy daily commodities. Inflation in stocks is not considered to be inflation, although prices will go up the same way.

A4ET8a8uTh03• 6 years ago

It is weird for me to read this. On the surface, it is factually correct, but I am not absolutely certain the conclusions drawn are valid.

Your initial paragraph seeks to address point raised by others that FED is running out of ammunition and you list of Japan as an example with other pointing out the price Japan paid for that pollicy.

I suppose FED could buy all US equities on national credit card ( and if you think about it, something similar to it happened only few months ago ), but do you think it is a prudent move?

heartbeats4• 6 years ago

Prudent move? It's the only move. If it's either that or a recession, then they will do it, consequences be damned.

tc313• 6 years ago

What would buying stocks do for the economy?

paganel2• 6 years ago

Artificially propping up pension funds and the like, basically an indirect cash donation from the FED to the middle-class people who are over 40. We’ll see how it goes, because we didn’t really experience capitalism without creative destruction until now (which looks like the path we’re headed on).

jrs235• 6 years ago

“If the American people ever allow private banks to control the issue of their money, first by inflation and then by deflation, the banks and corporations that will grow up around them (around the banks), will deprive the people of their property until their children will wake up homeless on the continent their fathers conquered.” ~ Someone, supposedly Thomas Jefferson

Edit: ~ "Thomas Jefferson" changed to "~ Someone, supposedly Thomas Jefferson"

jvanderbot• 6 years ago

"Spurious"

* No documentation ties it to its putative originator.

* Its earliest known reference did not appear until long after the death of its supposed originator.

* Multiple sources are claimed for its origins.

* Contextual information indicates the words are of more recent origin than claimed. (deflation/inflation)

1. https://www.monticello.org/site/research-and-collections/pri...

2. https://www.snopes.com/fact-check/bank-shot-2/

One of the “Rules of Misquotation” outlined by Ralph Keyes in his 1992 book on that subject is that axiom that “Famous dead people make excellent commentators on current events.” Given the fear and uncertainty engendered by the current economic situation, and the disgruntlement expressed by many Americans at the thought of providing taxpayer-funded government bailouts to financial institutions and other large corporate entities (such as the auto industry), it was only a matter of time until someone trotted out a quotation (apocryphal or otherwise) from a respected, long-dead figure demonstrating that this whole economic mess was both predictable and inevitable. And one could hardly find a more hallowed figure in U.S. history than Thomas Jefferson to deliver this message, warning us from across the centuries that predatory banks and corporations would eventually impoverish us all. [snopes]

foxyv• 6 years ago

That is an amazing quote. It seems that the attribution to Thomas Jefferson is a little off though.

https://www.snopes.com/fact-check/bank-shot-2/

AnthonyMouse4• 6 years ago

The trouble is that the nominally risky thing -- allowing banks to create a lot of money -- has already happened. Consumer debt is very high. Most of the borrowed cash is now in the coffers of corporations that never spend it, which keeps inflation low, but also keeps anyone from using that money to pay back what they borrowed. So they just pay the interest. Which they can do as long as rates are low.

The only way out of this is to get enough cash into the hands of regular people that they can use it to pay down their debts at the same time as interest rates increase to provide the incentive to do that. Either that means the money corporations are warehousing has to somehow get paid out as wages (which would require some kind of major e.g. tax policy change), or some other new money has to be created by the government and not banks (by fiat rather than as debt) and then transferred to regular people via a UBI or similar.

In the meantime we can pretty much keep kicking the can down the road by keeping interest rates low for an arbitrarily long period of time. We could even go further into it, because the lower interest rates are the more debt load people can carry. But that keeps increasing the amount of idle cash in the corporate coffers. Something something wealth inequality.

HSO• 6 years ago

Buy stocks. Buy treasuries. Do so with wild abandon, because the Fed has your back. Just watch out for the moment when the whole thing jumps into reverse and no amount of market manipulation will stop the bleeding.

In other words, buy low sell high. Got it. ;)

codelitt• 6 years ago

God help us all if our central bank starts taking cues from the Bank of Japan or the ECB and their zombie economies.

Our inability to suffer short-term consequences for long-term prosperity is a real issue that we as a country need to figure out how to solve. (Can you solve for human nature?) The fed shouldn't have made cuts in 2019 at the height of the market, we should have let failing banks fail, we need to start spending responsibly if we want to remain a reserve currency, and we need to learn that forest fires clear out the undergrowth for new growth.

Erlich_Bachman3• 6 years ago

Yes, but God has been helping us all already and it has been going on for decades, through QE and interest rates and bailouts, and a lot of top economists seem to be set on milking this as long as they can and keeping the cow on life support and drugs for a very very long time. And why shouldn't they? Nobody knows how long we can keep the cow alive, there is no real precedent. It can go belly up tomorrow or in 50 years. It works really well right up until the point where it doesn't at all anymore.

CerealFounder• 6 years ago

Man, amen. This is the worst one yet because it was clearly political. If this wasnt an election year, theres no way we get a .5% cut

harimau777• 6 years ago

I think a good start would be if average people were confident that they would take part in the long-term prosperity. Right now, that doesn't seem like such a good bet.

QuesnayJr4• 6 years ago

The idea that we should bear short-term consequences for long-term prosperity is the human nature we need to solve for.

The Fed has been much more aggressive than the ECB, and it's why the US recovered faster than Europe.

dustingetz• 6 years ago

You can solve for human nature. 3200 years ago we were all in a Prisoners Dilemma stuck at backstab backstab (literally killing each other). And then Moses came down from Mt Sinai and said Thou Shalt Not Kill, and lo, the solution to the dilemma was coordinated by shared principles. I think the solution to today-era social problems will probably look something like that.

thorwasdfasdf2• 6 years ago

this is a good point. there is something deeply disturbing when the Fed manipulates on a scale that controls the pricing of the entire stock market

foogazi• 6 years ago

Print money to then outbid people on price - what could go wrong?

thorwasdfasdf2• 6 years ago

As he said, here's a chart that shows what's going on: https://seekingalpha.com/article/4253231-japans-stock-market...

This is devastating.

grandridge• 6 years ago

Boj doesn't have the world's reserve currency. Japanese culture allows it as the citizens buy the debt along with large institutions. The whole world owns us debt and base their notion of wealth on it. The us is not a nation of savers The two are not the same

ilaksh2• 6 years ago

I believe Ray Dalio when he says it's the end of the long term debt cycle and like 1937 again.

I actually think the Fed is kind of happy to have a virus as cover for this move.

_marlowe_2• 6 years ago

This is a supply shock. Cutting interest rates won't make widgets appear if the widget factory is idle...

_marlowe_2• 6 years ago

I'm not sure why I was downvoted.

https://www.marketplace.org/2020/02/18/coronavirus-warnings-...

rolltiide3• 6 years ago

everyone is equally as confused as its the same user experience for everyone that comments but protip, talking about downvotes just opens a spiral of more downvotes until you criticize the site rules and get shadowbanned. taking one for the team!

throwaway57522• 6 years ago

This is not solving the problem which is 1) the US is drastically behind in testing the population 2) it will not fix disrupted international supply chains 3) it will not fix liquidity crises at health insurers, hospitals, and life insurers and 4) it will not fix demand if people do not want to go shopping at any price because of non-financial concerns.

I presume the Fed knows this, and what worse is this seems to be due to political pressure.

Finally, when this does not work, it will reduce peoples' faith in the Fed.

scarmig4• 6 years ago

Hey now! SPY is up 0.01% at the news!

snarf21• 6 years ago

People have faith in the Fed? You are right though, this is political to slow a market correction to where it actually should be. We just keep spinning more plates. What we really need if fiscal policy plans, not monetary. We have so many zombie companies that are on life support and we need to let them die but it won't happen with 0% rates.

seganddr2• 6 years ago

The US federal reserve are the best in the world at what they do IMO.

ajross• 6 years ago

It won't fix any of those, but it will smooth the impact of 1, 2, and 4 over a longer period, which has value. And it absolutely does treat 3 directly, though obviously there is a balance sheet problem with insurers (not the same thing as a liquidity problem!) that will need to be treated by some kind of a bailout eventually.

People are being too rigid here: this isn't a perfect policy but it's not an inherently bad idea. You use monentary policy to buffer shocks to the economy, and in that regime it's best used early and with agility. I think the Fed is fine here, though I agree that this is a very minor side plot in a much larger story.

throwaway57522• 6 years ago

Yeah, I didn't want to seem alarmist and talk about solvency crises in the insurance market. But I would be interested what impact this might have on life/health/related reinsurers. I feel like targeted intervention in that sector similar to the auto manufacturers is a better thing to plan for and I'm not sure that a 50 basis point cut is going to help as much as you do in 1/2/4 and will be insufficient in 3.

One thing that bothers me and I don't see discussed here is how much the market moved ahead of the announcement. It is very alarming that this sort of information leaked ahead of the announcement as much as it did. I would be interested to know how that reached the market.

jcfrei• 6 years ago

I agree with 1,2 and 4. However why shouldn't this help with liquidity problems for insurers?

ck2• 6 years ago

So every safety in our country and economy is now disabled, air and water regulations food regulations,taxes cut to flatline levels for industry, all in the name of profit. Now the monetary system is being tampered with further.

All reserves are gone. Imagine trying to climb out of this ditch if something really bad happened (like say a million people die).

ngngngng• 6 years ago

So should I wait a week and then refinance my houses?

JMTQp8lwXL3• 6 years ago

The effects to the mortgage market aren't immediate, but should follow on soon. I'd keep an eye on current rates and observe the fall before signing any paperwork.

tlb• 6 years ago

It's well-understand how low interest rates boost the economy in the medium- and long-term. Companies deploy cheap capital to build new factories, and consumers buy more appliances, cars, and houses.

What short term behavior changes do emergency rate cuts cause to boost the economy? Are there capital projects that can get started in weeks, that were previously shelved because the rates were 0.5% too high, but are now viable? What sort of projects would these be?

shdh• 6 years ago

Companies deploy cheap capital to build new factories

Have we actually seen investment though? Or have we seen mostly stock buybacks?

yumraj3• 6 years ago

China started with single digit cases, which then spread countrywide with tens of thousands of cases and many deaths. They quarantined cities, built 1000 bed hospitals in 10 days. And now after about 2 months they are seeing a slowdown.

Why would this exact scenario regarding growth in the number of cases not play out in the US? The only difference is smaller population, but cities are dense here too.

However, unlike China, I don't think US and other countries will be able to quarantine entire cities.

They only hope IMHO is that the virus becomes less virulent with as summer approaches.

unreal372• 6 years ago

Apparently China will have a massive economic cost to this.

"New data on China that has trickled in over the last few days suggests the damage coronavirus has wrought on the world’s second-largest economy could be worse and more prolonged than previously expected, despite a decline this week in the number of new infections in the country."

[0] https://business.financialpost.com/news/economy/five-signs-t...

AnimalMuppet8• 6 years ago

The cost of doing nothing may have been far higher, though.

cprayingmantis• 6 years ago

I think the thing that no one is looking at here is that nursing homes and elderly care centers are going to be hot beds for the the virus. From my understanding China and most of these Asian countries is that don't have nursing homes so the house can be isolated. Here in the US we concentrate the elderly in these nursing homes and hope for the best. Most CNAs don't have enough vacation or sick time to miss work so they will continue to come to work if they're feeling a little bad or have a slight fever and they will spread it despite everyone's vigilance.

tartoran• 6 years ago

Perhaps CNAs should start wearing masks not only to prevent getting sick but to prevent spreading the virus.

stefano• 6 years ago

I don't think US and other countries will be able to quarantine entire cities.

Italy quarantined entire towns.

yumraj3• 6 years ago

Small towns. Can US quarantine entire Bay Area, or entire Santa Clara county? Maybe, but the cost to economy would be huge..

coliveira6• 6 years ago

This is a big mistake. There is nothing the Fed can do revive the economy from the Corona virus, because this is not a demand problem, it is a supply problem. The economy WILL slow down because the major parts of the economic chain have been considerably affected by this virus. You cannot use more money when there is less to buy and sell. This will happen simply because whatever solution to the virus disruption will take time to be implemented.

MrPowers• 6 years ago

I am always surprised when software engineers have such strong opinions on monetary policy. Black and white statements like "There is nothing the Fed can do revive the economy from the Corona virus" aren't the best for macroeconomics discussions that rely on imperfect information and multiple related variables. Your wording makes it sound like you know more about macro than the best minds in monetary policy.

JMTQp8lwXL3• 6 years ago

It's more than Software Engineers that perform armchair economic analysis. I wouldn't single them out. Anybody who's well-to-do and participates in markets has a direct interest in paying attention to the Fed and markets. Anybody in top 10% likely has good reason to pay attention.

Der_Einzige2• 6 years ago

Software engineers are uniquely qualified to analyze supply chains and supply chain problems. In this case, technical analysis looks a whole lot different than the chicken bone divination stuff you see with thinkorswim or other trading platforms...

hurricanetc5• 6 years ago

What does anyone expect a Fed interest rate cut to do to spur people to go back to business as usual? The city of Austin is about to cancel SXSW. Do people think they might change their mind now that the Fed has cut borrowing rates?

No. People are reacting to this virus by actively choosing to avoid conferences, travel, restaurants, movies, shops, and sporting events. They aren’t doing it because they’ve run out of money or are trying to save. They’re doing it because they don’t want to get sick. The Fed can’t will people back out into normal life by cutting interest rates.

And that’s why the market is basically flat today after this announcement. The market has nearly universally reacted to this rate cut with ambivalence.

inskey_• 6 years ago

I hate to say it, but I believe your confidence is severely misplaced. The indoctrinated airheads running the Fed are hardly the "best minds in monetary policy." This is the same central bank that stuck its head in the sand despite clear warnings approaching the 2008 financial crisis, then proceeded to overreact to appear as if they were doing something(1).

When is the last time the Fed's spastic behavior had a sure and long-term positive impact on the economy from the average person's perspective? I specify this perspective because the macro measures used by central banks are not always accurate indicators of the general welfare. Central banks are good for primarily one purpose, and that is ensuring the economic dominance of the groups controlling them. This has been their purpose throughout history(2), and I don't see that changing now. This most recent move is at best a platitude.

All that said, I agree with your sentiment that blanket statements, especially in the highly dynamic field of economics, tend not to be accurate or helpful.

(1) Danielle DiMartino Booth, Fed Up

(2) Look into the history of the Banque Royale of France 1716-1720 and the history of the Bank of England up into the 18th century. The long and short of it is these banks were used as mechanisms by the elite to retain control over currency systems which would otherwise have given too much power to the public for their liking.

ajphdiv• 6 years ago

I had some call options on Robinhood that I wanted to sell after the spike caused by this rate hike. Now I'm watching my gains slowly go away since Robinhood is down again. Two days in a row.

rolltiide3• 6 years ago

and what lesson have you learned?

vanniv• 6 years ago

This seems like a bad move.

It isn't going to help, because it doesn't address the actual cause at all -- but it will help heighten the panic

chvid• 6 years ago

I like how you guys are pouring free money into the financial system while still asking $3000 if an uninsured person needs to be tested.

OscarCunningham3• 6 years ago

This isn't free money.

interlocutor2• 6 years ago

This abrupt move by the Fed betrays lack of knowledge of stock market psychology. Looking at how stocks are doing today you would not think that anything of interest has happened (no pun intended).

The stock market psychology works on "buy on rumor, sell on news" principle. This is the reason there was a significant rally yesterday, and stocks are in negative territory today.

What the Fed should have done is give signals that they are about to cut interest rates, then give stronger signals, then even stronger signals, then cut interest rate by 0.25% then repeat for the next 0.25%. Markets would have rallied multiple times for each good news signal.

news_hacker• 6 years ago

This is assuming that the fundamental trust in the market is still there though the global pandemic. It's hard to heal a deeper pessimism when it settles in, and the coronavirus has caused this, especially in the elderly.

I think the Fed understands stock market psychology pretty well.

I think they just didn't have a choice here.

spectramax2• 6 years ago

"buy on rumor, sell on news"

Let me stop you right there - stock market is a multi-agent system with autonomous algorithms making micro decisions, cap managers doing strategic decisions, and everything in the middle. Add a bit of chaos theory. "Buy on rumor, sell on news" is an extremely simplified and naive rational for explaining how a stock market works.

Most theories of how a stock market works have a built-in fallacy. If someone figured out how the stock market fluctuates, it would be ironed out by massive hedges.

interlocutor2• 6 years ago

There may not be one, precise and predictable way the stock market works, but buying on rumor, and selling on news is a very common, herd mentality that is easily observable, as seen yesterday (rumor) and today (news).

76543210• 6 years ago

I'm looking to refinance. If my lender says the rate hasn't changed from 3.25% since last week, that's bullshit Right?

How long should I wait for the rates to move?

throwaway31574• 6 years ago

It looks like the rates actually went slightly up from a few days ago (though these depends on many variables, but I'm comparing to my local rate that I've been checking for weeks). Might change tomorrow based on today's news.

rubidium• 6 years ago

How do you check your local rate?

Spellman• 6 years ago

Rates are pretty quick on responding.

Here's where they stand today based on a survey of lenders, down to about 3.13%: http://www.mortgagenewsdaily.com/mortgage_rates/

harryh2• 6 years ago

Mortgage rates do not move in lockstep with the fed overnight rate.

yters• 6 years ago

What if the reaction to the coronavirus is worse than the virus itself?

b1ur• 6 years ago

I agree to an extent. From a utilitarian standpoint, the economic damage caused by the virus is not outweighed by a mortality rate of 0.2%. That being said, coronavirus has the potential to become worse (more infections -> more mutation -> potential to mutate more aggressively or more resistant to our research) so minimizing infections is probably a good idea. Not to mention, people tend to get angry when you start assigning objective tangible value to human life.

cft• 6 years ago

I am wondering: what if this happened when the interest rates were zero?

auiya• 6 years ago

Imagine facing a global pandemic, and your first concern is how to profit from it.

zcase• 6 years ago

50 bps cut, initial rally, faded super fast and now down for the day. Would be interested to see if Fed cuts further.

The first order effects weren't so large to stem the selloff (first order meaning the PV effect of lowering discount rate).

As for second order effects (rate cuts to spur economic activity), I'm not even bullish about the mechanism to transmit rate cuts to the real economy normally, but I think in a quarantine situation, those mechanisms are even more diminished as there's less economic activity. Thinking out loud, demand will probably just hit a wall--there's no elasticity here when people are worried about their lives.

The only mechanism that sounds plausible to flow through to the real economy is fiscal. Government buys Pampers, burns them, buys them again. Or keep lowering rates to raise asset prices by a purely mechanical lowering of discount factor.

pearjuice• 6 years ago

I don't want to sound overly negative but at least hedging with puts (and not gambling but sane expiry dates) against index funds isn't a bad idea. Cutting rates by a half point is panic football and won't fix the supply chain hiccups which will affect production and therefore consumption.

woeirua3• 6 years ago

This is the start of the next Global Financial Crisis folks. It's not hard to see the pieces in motion now:

1 - The Q1 supply shock is going to be a temporary thing. They'll recover alright after causing some companies to miss their Q1 earnings. If this was the only effect, we would recover just fine here later this year, but...

2 - Coronavirus is just getting started in the US and Europe. If it spreads widely, and unabated, then the those countries will be forced to enact school closures, business closures, etc, which will cause a massive demand shock.

3 - Demand shock will tank airlines, cruises, restaurants, malls, etc. Basically anything that requires groups of people to make money.

4 - Eventually, demand shock will hit corporate balance sheets in a big way. Many corporations (especially in the energy industry) are overloaded with debt [1]. If this goes on long enough, then those companies will go bankrupt.

5 - If enough companies default on their debt simultaneously, then derivatives on corporate debt (defaults) will cause a systemic crisis again [2].

There's no guarantee that this will happen, but if it does it's going to make 2008 look like a joke by comparison.

If it does, we need to do the right thing this time: wind down the banks and let them fail.

For the downvoters:

[1] https://www.nytimes.com/2018/09/01/opinion/the-next-financia...

[2] https://www.wsj.com/articles/in-a-blast-from-a-financial-cri...

seganddr2• 6 years ago

Please don't spread FUD. Please do provide references for your claims.

woeirua3• 6 years ago

This isn't FUD:

https://www.wsj.com/articles/in-a-blast-from-a-financial-cri...

HenryKissinger2• 6 years ago

At some point between steps 4 and 5, shouldn't the government say, "maybe y'all shouldn't have leveraged yourselves so much; debt is inherently bad, and we won't bail you out this time; figure this out; and don't rack up so much debt next time"?

This addiction to debt has got to stop, and unfortunately it sometimes takes cold, hard pain for some to learn a lesson.

woeirua3• 6 years ago

It should, but the system is not designed to handle the bankruptcies of many companies simultaneously.

freepor• 6 years ago

I wonder if economic indicators will temporary blip up because of stockpiling. I recently bought $1000 of food and supplies and books and toys for my kids if they get stuck indoors which would have normally taken me six months to buy.

tasty_freeze3• 6 years ago

Pardon my cynicism, but it seems like many of the actions the administration is pushing are simply things they were pushing already and are using this health crisis as cudgel to help get what they want.

What we need are lower interest rates! What we need is to limit immigration from Mexico (even though the US has a higher infection rate and there isn't any talk of limiting flights from, say, England). What we need to do is silence domain experts and have communications controlled by politicians at the White House.

Maybe this rate cut is actually the right thing to do, what do I know? But I have little reason to believe it was made for the right reasons.

tachyonbeam2• 6 years ago

Agreed, I think many people in the administration and at the Fed were itching to cut rates for a while, and this is the perfect excuse to do what they were already planning to do.

dageshi• 6 years ago

The administration doesn't direct interest rate policy, the FED does, within the context of the FED's mandate a rate drop isn't unexpected during an event like this.

SkyPuncher• 6 years ago

The administration doesn't direct interest rate policy, the FED does,

Given that the administration choose exactly who leads the FED, they're not exactly independent either.

cmer• 6 years ago

To be fair, Trump has been pushing the Fed around non-stop. They basically follow his indirect orders. All for political gain at the expense of the future. It's pretty pathetic.

tasty_freeze3• 6 years ago

That is how it is supposed to work. Over the past couple of years we have seen the President break with tradition and uses his megaphone to berate and belittle the fed to try and get what he wants. Of course we cannot know if the fed has ignored all that, but by appearances, the president seems to be having an influence.

slowmovintarget• 6 years ago

"Never let a good crisis go to waste." -- Rahm Emmanuel

New gov, same as the old gov?

tasty_freeze3• 6 years ago

Rahm Emmanual was indeed initially in Obama's cabinet, but he didn't last a year. Perhaps his politics didn't fit with the tenor of that administration.

To use that quote to set up an equivalence between the two administrations is beyond the pale. I think neither Democrats nor Republicans would say the two administrations are alike.

takeda• 6 years ago

The way things looking it is an attempt of propping things up until November, and it will be harder now.

When our economy was doing well, the rates supposed to be increased, now we have very little room to use that to help with recovery.

neonate• 6 years ago

https://archive.md/MusGO

Fed cuts half point in emergency move amid spreading virus

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