On Sunday, the Federal Reserve issued its second emergency interest rate cut of March, slashing its fed funds target range by 1% to between 0% and 0.25%. In addition to the rate cut, the Fed announced a new $700 billion quantitative easing program.
On Monday morning, the Federal Reserve said it will be conducting a $500 billion short-term lending operation on Monday afternoon. The latest operation is on top of the $1.5 trillion in Fed repo operations announced last week.
The initial market reaction to the Fed’s move wasn’t great, with the S&P 500 and the Dow Jones Industrial Average down more than 8% at time of publication.
Market analysts and experts have weighed in on the Fed’s aggressive move to support the economy on Monday. Here’s a sampling of what they had to say.
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More Stimulus Needed?
Long-time Fed critic President Donald Trump said he was pleased with the decision to drop rates to 0%.
“It's something that we're very happy, I have to say this, I'm very happy. And they did it in one step, they didn't do it in four steps over a long period of time,” Trump said Sunday.
Bank of America economist Michelle Meyer said the Fed’s actions should help stave off panic for now, but more action will likely be needed.
“We are already forecasting negative GDP growth in 2Q but the risk is that it proves to be a much deeper and more prolonged contraction in economic activity,” Meyer said.
DataTrek Research co-founder Nicholas Colas agreed that investors should expect more stimulus ahead.
“The Federal Reserve’s Sunday afternoon decision to take rates to zero and buy $700 billion of Treasuries and mortgage-backed securities is, of course, a step in the right direction but more stimulus will almost certainly be needed,” Colas wrote.
Troubling Timing
Tom Essaye, founder of Sevens Report Research, said the timing of the Fed’s announcement on Sunday when it has a regular meeting scheduled for Wednesday may have spooked the market.
“It implies panic, (what did they know that we didn’t?), although that’s probably not the case in reality,” Essaye said.
Ross Gerber, Co-Founder and CEO of Gerber Kawasaki Wealth, said the market reaction to the aggressive Fed move on Monday is discouraging.
Shit is getting real now. Fed goes all the way. Gets nothing. No leadership in our nation. Creating a bigger mess than the virus. Crazy times.
— Ross Gerber (@GerberKawasaki) March 16, 2020
Baird market strategist Michael Antonelli said some investors may be overanalyzing the Fed’s moves.
Every one of you with your godawful Fed takes need to stop
— Michael Antonelli (@BullandBaird) March 15, 2020
No they aren't curing the disease, No they aren't trying to get the stock market to go up. No they aren't "out of bullets"
They are making sure the financial system functions to get us thru this. That's it.
Fiscal Solution
Alex Rampell, general partner at Andreessen Horowitz, said the U.S. economy needs a fiscal solution, not a monetary one.
We don't need a monetary solution. We need a fiscal solution. For many businesses, mandatory shutdowns is tantamount to eminent domain of revenue and solvency. It's for a good health reason, but the economic virus will soon be impossible to contain
— Alex Rampell (@arampell) March 15, 2020
Josh Brown, CEO of Ritholtz Wealth Management, said the U.S. government now needs to get serious about its budget.
Fiscal side needs to get serious. We spend $600 billion or 54% of our annual budget on the military. And that's not even counting appropriations. There's money, and the economy needs it. https://t.co/Fs7P153JC6
— Downtown Josh Brown (@ReformedBroker) March 15, 2020
Negative Rates Ahead?
Peter Schiff, CEO and chief global strategist of Euro Pacific Capital, said it’s not surprising that the Fed’s actions did little to stimulate the market.
“The apparent success of QE and ZIRP in 2008 created a false sense of security that this policy will work again. It only appeared to work last time because everyone believed it was temporary,” Schiff tweeted.
Allianz chief economic advisor Mohamed El-Erian said the Fed got things backward by starting with general rate cuts and then targeting problem areas, such as the repo market.
“We should have been more laser-like focused on areas of market failures ... and then followed up with more general interest rate cuts when that can have an impact,” El-Erian said Monday.
Nigel Green, chief executive and founder of deVere Group, said the Fed could soon venture into uncharted territory.
“We’re moving towards an era of negative interest rates. The second cut of rates, now at zero, by the Federal Reserve – the world’s de facto central bank – suggests that the U.S. could soon join peers in Europe and Japan by adopting negative interest rates,” Green said Monday.
See Also: Will The Fed's $1.5 Trillion Emergency Stimulus Actually Help?
Business Impact
Morgan Housel, partner at the Collaborative Fund, said the U.S. government should temporarily shut down the economy and stimulate citizens directly with a $1 trillion package.
Shut it all down and do a $1 trillion stimulus.
— Morgan Housel (@morganhousel) March 15, 2020
$3k check per adult, that's $600 billion. Then tell businesses not to worry about payroll during the shutdown.
The rest on loans and foreclosure mitigation.
Do it tomorrow.
WalletHub CEO Odysseas Papadimitriou said U.S. business owners should take the rate cut seriously.
“This weekend’s Fed rate cut should be a wakeup call for businesses to begin working remotely, if they haven’t already. Companies have two major objectives in doing so: minimizing interruptions to business processes and safeguarding human capital,” Papadimitriou said.
© 2024 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.
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