Fed Makes Surprise Inter-Meeting 50 Basis Point Rate Cut

Mish

Fed lowers federal-funds rate range to 1% to 1.25% in its first between-meeting move since the financial crisis.

Congrats to Jim Bianco for outright predicting this headline: Federal Reserve Cuts Rates by Half Percentage Point

The Federal Reserve cut its benchmark rate by a half percentage point on Tuesday morning, delivering a booster shot to stem potential economic disruptions from the spreading coronavirus epidemic with its first between-meeting move since the financial crisis.

Tuesday’s cut lowered the federal-funds rate to a range between 1% and 1.25%.

Fed Chairman Jerome Powell at a press conference following the rate cut said the central bank “judged that the risks to the U.S. outlook have changed materially” and that the Fed “can and will do our part, however, to keep the U.S. economy strong as we meet this challenge.”

“We do recognize a rate cut will not reduce the rate of infection, it won’t fix a broken supply chain. We get that,” Mr. Powell said. “But we do believe that our action will provide a meaningful boost to the economy. More specifically, it will support accommodative financial conditions and avoid a tightening of financial conditions which can weigh on activity and will help boost household and business confidence.”

Trump Complaining

On Sunday, I commented Market Expects Emergency Rate Cut by the Fed on Monday Morning

Apologies offered. It was Tuesday morning.

Congrats to Jim Bianco who outright predicted this.

I few weeks ago I suggested the Fed was likely to do this but Bianco confidently predicted they would.

As noted yesterday, a Global Recession Now Baked in the Cake

Mike "Mish" Shedlock

Comments (75)
No. 1-23
Sechel
Sechel

50 bps rate cut doesn't make people go to the malls or visit their local chinese restaurant. this was simply irresponsible and hurts the elderly , insurance companies and pensions.

njbr
njbr

Fighting the last war...

Shortest party ever.

Bet that makes everyone feel better about the economy.

Maximus_Minimus
Maximus_Minimus

This clown parade isn't funny any more. And the way to end it, is to get the virus and be done with it all.

Greenmountain
Greenmountain

Tax cut or stimulus in the making - by end of month unless virus slows down.

Art Izagud
Art Izagud

He's making the case that it is a wartime policy and calling for more easing. Makes much more sense for that easing to go to the people so they can stay home and rebuild local economies via having demand through purchasing power.

Tony Bennett
Tony Bennett

Mommy!

Herkie
Herkie

Yesterday I said there would be a half point cut BEFORE the next Fed meeting. And as the economy contracts they will likely try to surprise markets with another quarter or half point mid month at their regular meeting. It is too early to see the hard data for us, but they are seeing daily reports in real time and what they are seeing is an economy that has hit a steel reinforced concrete wall. They had to do the half point cut NOW! It was the least they COULD do or the equity markets would have folded like a cheap suit all the way down to about 12k, maybe more. And this cut was already priced in so I expect it will do little to help, by mid month they are going to need to do it again.

The only way it is going to help is by the vast new injections of liquidity into the banks, but that is just going to get used to prevent hedge funds and banks from collapsing. None of this cut will translate to lower consumer interest and thus no stimulus to the real economy. In fact rate cuts like this often hurt more than helping because now consumers will put off purchases as long as they can in anticipation of the lower rates reaching Main Street. But it is not going to happen. At least not unless your FICO is over about 825. The rest of the economy (like 75% of us) are going to pay through the nose for credit, and I know this for a fact because I am buying a house now (close April 6) and the rate is 274 basis points above the 10 year treasury, NORMALLY mortgages are 100 bp above the ten year.

Ted R
Ted R

And just what the country needs right now, more f**king debt. Debt that we can never repay. The Fed just made the debt bubble even bigger.

Whisper2018
Whisper2018

this big move from the FED may scare people away from spending and may well reinforce the downward momentum initiated by the coronavirus..

Runner Dan
Runner Dan

So, will the Fed cut rates again on the 18th?

hmk
hmk

Trump is making a fool of himself with his ridiculous criticism of the fed. I wish he would just stfu.

Carl_R
Carl_R

As I pointed out previously, this is the classic "you can't push on a string" example from the 1930's. When primary demand is destroyed, you can't make it re-appear with rate cuts. Yes, now you can get lower rate deals on car loans, appliances, and homes, but will those make you more apt to buy when what you really would like to buy is an N95 mask?

This won't significantly increase primary demand, but it does make is clear that this is a major inflection point.

Mish
Mish

Editor

50 bps will help housing

Bam_Man
Bam_Man

Get ready for $2 TRILLION deficits and unlimited debt monetization.

That is the Keynesian "endgame", and we are now in it.

The global currency crisis that Mish has said "is on deck", is now walking to the batter's box.

KidHorn
KidHorn

And this clearly wasn't leaked to anyone yesterday.

AWC
AWC

Wow! 50 Bp. That’s enough to make folks book an Asian cruise, no?

abend237-04
abend237-04

I remember Powell's comments from Fed meeting minutes during Zirp-infinitum. His position was that the Fed should get out of the business of being Wall St.'s lapdog, "It'll never be enough for Wall. St.; "Even 4.3 Trillion won't be enough."

He was obviously right, and to see him now cave this quickly and 'go for two' two weeks early is ominous, I think.

CautiousObserver
CautiousObserver

Proof that from the point of view of a hammer, everything looks like a nail.

njbr
njbr

Why this is worrisome to markets--if you read SA or other sites there are a significant number of people who still think that CV is nothing to worry about.

A 1/2 point cut with a call for more says"something to really worry about".

No reassurance in this action, and way too soon.

Shooting the big guns when everyone knows we are using one of the few remaining shells--a big sign of trouble ahead.

And the cut today just alerted the people who think lower rates reflexively goose the market that that isn't necessarily so.

Zardoz
Zardoz

People can't run up their credit cards buying crap that China hasn't produced. Good for the fat cats though... they can borrow for free and scoop up assets.

truthseeker
truthseeker

Yeah savers have done great if they socked all their savings in to long term bonds for the last 40 years!

Clover NL
Clover NL

This doesn't leave much room for further rate-cutting before it becomes negative; what would the effects be if the interest rate became negative?

Frogdog
Frogdog

12 years ago loose fiscal policy rotted out the middle class and popped the feds bubble....This year the fed met sharper needle.