In Emergency Meeting, Fed Fires All Its Bullets in a Single Shot

Mish

Over coronavirus concerns, the Fed just slashed interest rates to 0.00% to 0.25% in an emergency Fed meeting.

The FOMC rate cut decision was scheduled Wednesday March 18.

Instead, the Fed made this emergency Monetary Policy Statement today.

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 for the federal funds rate to 0 to 1/4 percent. 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. This action will help support economic activity, strong labor market conditions, and inflation returning to the Committee's symmetric 2 percent objective.

The Committee will continue to monitor the implications of incoming information for the economic outlook, including information related to public health, as well as global developments and muted inflation pressures, and will use its tools and act as appropriate to support the economy. In determining the timing and size of future adjustments to the stance of monetary policy, the Committee will assess realized and expected economic conditions relative to its maximum employment objective and its symmetric 2 percent inflation objective. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments.

The Federal Reserve is prepared to use its full range of tools to support the flow of credit to households and businesses and thereby promote its maximum employment and price stability goals. To support the smooth functioning of markets for Treasury securities and agency mortgage-backed securities that are central to the flow of credit to households and businesses, over coming months the Committee will increase its holdings of Treasury securities by at least $500 billion and its holdings of agency mortgage-backed securities by at least $200 billion. The Committee will also reinvest all principal payments from the Federal Reserve's holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities. In addition, the Open Market Desk has recently expanded its overnight and term repurchase agreement operations. The Committee will continue to closely monitor market conditions and is prepared to adjust its plans as appropriate.

Voting for the monetary policy action were Jerome H. Powell, Chair; John C. Williams, Vice Chair; Michelle W. Bowman; Lael Brainard; Richard H. Clarida; Patrick Harker; Robert S. Kaplan; Neel Kashkari; and Randal K. Quarles. Voting against this action was Loretta J. Mester, who was fully supportive of all of the actions taken to promote the smooth functioning of markets and the flow of credit to households and businesses but preferred to reduce the target range for the federal funds rate to 1/2 to 3/4 percent at this meeting.

$700 Billion in QE

That's another $700 billion in QE, in addition to the $1.5 trillion in QE (but let's not call it that) announced last week.

On Thursday March 12, I reported Fed to Inject $1.5 Trillion in Liquidity But Markets Plunge Again.

Futures Limit Down

It appears we are going to have a repeat performance on Monday as futures are limit down.

Gold is up $56 to $1572.

Illinois Mandates Closure of All Bars and Restaurants Until March 30

Earlier today I noted Illinois Mandates Closure of All Bars and Restaurants Until March 30

Ohio has done the same and New York is likely as the NYC Comptroller Wants to Shut All Restaurants and Bars.

Massachusetts Orders Closures

The NBA, NHL, NCAA March Madness, and countless schools are closed.

Italy and Spain have nationwide lockdowns, and all air traffic into the US from the EU is closed down.

Understanding Trump's Management Process

The economic impact will be staggering.

Out of Bullets

The Fed is out of bullets. But don't expect the Fed to ever admit that.

Mike "Mish" Shedlock

Comments (150)
No. 1-47
Bam_Man
Bam_Man

That "Nestle $100,000 Bar" will eventually cost you $100,000.

Deflation/Liquidation panic first, though.

lol
lol

Fed is determined to hold the line at dow 20k even if it means printing a trillion dollars (QE5) everyday,or roughly half a quadrillion dollars this year in a desperate (suicidal)attempt to keep the dow from collapsing on it's ass...Can the dollar survive????

Freebees2me
Freebees2me

Bazooka or Towel..???

Prices of consumables - ready for lift-off!
Prices of assets - elevator down, please!

Carl_R
Carl_R

If you push on a string, and nothing happens, push harder.

abend237-04
abend237-04

Can't blame him. If I had been run down by two thousand pound grizzlies, wouldn't want them to find my gun with unfired rounds in the magazine.

Maximus_Minimus
Maximus_Minimus

They kept string it out, waiting for a black swan. Couldn't have happened to a nicer bunch of clowns.

Freebees2me
Freebees2me

GOLD PRICES??

Temporarily, gold prices will sell off as it is liquidated to cover various positions.

This may be the LAST and BEST time to buy GOLD....

Optimist
Optimist

Preparing golden parachutes for the 0.01% while rest gets a towel to defend against Covid.

truthseeker
truthseeker

Noice they’ve already hammered gold back down about 30 from the high so next the Fed will get the PPT ready to start buying highly leveraged stock derivatives would be my guess.

Six000mileyear
Six000mileyear

The next "tool" to be used will be banning short selling. It is perceived as a 0 cost option fiscally and politically; however, a ban removes those who are required to buy shares in the future.

The tool after that would be to shut down markets so portfolio values don't fall anymore. Depositors would then face haircuts until FDIC limits are reached or banks books are out of the red.

Lurking in the background would be for the FED to break the buck by declaring the last market value of US government bonds the same as cash. Once the bonds become the official metric for value of savings accounts, the bond market could re-open. Banks would remain solvent and depositors would take yet another loss.

FED action confiscating printed dollars is futile since the amount of debt dwarfs the amount of cash in circulation.

Six000mileyear
Six000mileyear

YES, I agree. I'm looking for gold to bottom below $1000/oz. Then I'll pick up ~100 gold coins. Housing prices will crash too, so I want some cash available to buy a nice house in full.

QE2Infinity
QE2Infinity

The Fed is loaded to the gills with bullets, and they're all aimed at the responsible citizen who works hard and saves. Helicopter money here we come.

njbr
njbr

CDC now recommends no gatherings of more than 50 people.

Isn't the next step banning all flights?

Maximus_Minimus
Maximus_Minimus

"When sorrows come, they come not single spies. But in battalions."

Greggg
Greggg

"All major US banks which are ending stock buybacks". Awwww... that was really nice of them. Betcha they will not announce when they resume stock buybacks... maybe later this week.

TumblingDice
TumblingDice

Remnant of Ben (I'm the Smartest Guy in the Room) Bernanke.
Quarter point interest RANGE.
Just say the FED RATE is 0%.
Clown. Lol.

Matrix
Matrix

The Fed has plenty of bullets. A commercial paper facility could provide limitless dollars directly into the economy. They can buy limitless government paper. They can make the Fed funds rate negative.

Will all that work? Of course it will. It will inflate all the debts away, along with most of the perceived wealth.

Plenty of bullets that will be used. Better have some gold in hand is all I can tell you.

Djc52
Djc52

The Fed is also washing their hands

numike
numike

“The Fed has thrown everything at this. If we are now facing the end of central bank action, it means we are on our own,” said Seema Shah, chief strategist at Principal Global Investors. “There is a fear settling in the market, investors are terrified that this was all that was left.”

RedQueenRace
RedQueenRace

So, negative rates coming?

Do they ban cash withdrawals to avoid bank runs? They can also claim that the virus circulates with cash.

Use the crisis to get something people would otherwise not tolerate.

shamrock
shamrock

"all air traffic into the US from the EU is closed down."

That's not correct. US Citizens will continue to be allowed to fly from Europe to a designated US airport.

daveyp
daveyp

Think that central banks and politicians worldwide will be absolutely shitting themselves at today's market reaction. Think therefore that fiscal measures will be utterly gargantuan. Assuming the market roars north as a result, then will be the mother of all shorting opportunities.

(BTW, this stated from the perspective of one who bought ultra long dated gold calls long ago and reinforced recently in expectation of unprecedented monetary and fiscal largesse)

JohnB99
JohnB99

And just when Powell started to see the effects of their 2008 actions reaching the lower and middle class!

Guess they're waiting another 12-20 years

Maximus_Minimus
Maximus_Minimus

Wow, these idiots certainly know how to change the narrative. In the morning, we were calmly talking about the corona virus, and by the end of the day, we are talking about biblical calamity.
Mish better have a dozen hands to type, just to keep up!

Herkie
Herkie

I am not usually at a loss for words Mish you know that. But this time I am. I am watching my life coming to an end and just HOPE somehow it is not true, but with today's measures and the governor of NY demanding Trump call out the military (to do what exactly?) I am getting really depressed. As most of you know I made an offere on a house in Florida 3,000 miles away and it was accepted, so I am in a contract, and have funded the escrow account, as well as signed a binder for homeowner's insurance, paid for inspections, flew to Tampa to walk through the house, paid for a moving truck from Penske, and gave notice to my landlord in Oregon, I have to be out in two weeks no matter what else happens. I even paid water and electric and cable deposits at the new house, have an appointment for installation on the 6th.

If I am not there on the 6th I lose all of that, and it is all I have. I am a disabled vet, enough income to live but not enough for months of emergency fund.

And what about the ability to even sign that contract if I can get there? What is happening to interest rates and mortgages? You would think that they would drop but last week when the Fed cut rates by 50 basis points the average new mortgage interest spiked by 54 basis points.

Not to mention the longer term problems with inflation that have got to happen with this sudden jolt of cash flooding the economy. All I get for raises is the CPI and we all know how grossly under real inflation that is.

Then there are little things like my airline ticket to Oregon to get my car. American has already announced a 75% reduction in flights, United cannot be far behind. I can't live in the new house without private transportation, it is miles to any store even if there is anything in that store to buy, at a price I can afford.

This is in my mind what it must have been like when the Great Depression started in October 1929, only with aq deadly pandemic thrown on top for good measure.

[EDIT] By the way, I meant to mention that a house listed at $279k in Wiki Watchee over by the Gulf was sold a few days ago for $135,000 cash. They took a more than 50% hit to make a quick cash sale.

Herkie
Herkie

Gasoline futures also down, to 81 cents per gallon. Anyone who went long on the dip will be getting margin calls in the morning, in fact I should think there will be quite a lot of margin calls in the morning and not just some commodities.

Mish
Mish

Editor

The Fed can accept collateral and can do massive QE.

It cannot give money to consumers who are living paycheck to paycheck and are now out of a job.

The Fed has no power

Brexitologist
Brexitologist

Hmmmm... we shall need a bigger Fed...

phatmaster
phatmaster

This is kind of sad to watch. Sort of like firing all the bullets in the gun, seeing no effect, and then throwing the gun at them.

Realist
Realist

This is all so very, very sad. The United States is about to suffer a perfect storm. Listening to Herkie and others is truly distressing. And it didn’t have to be this bad.

Sadly, the US elected the worst President possible. One who is only concerned about himself, and cares little for American citizens. One who is incapable of planning for disaster. One who is incapable of even responding to a disaster, and would rather tell lies than admit that a disaster is actually occurring.

One who disbanded the Pandemic response team because anything created by a previous administration was flawed. One who now says, “This is something that you can never really think is going to happen.” For many years, the national intelligence director’s worldwide threat assessment has warned that a flu pandemic or other large-scale outbreak of a contagious disease could lead to massive rates of death and disability that would severely affect the world economy. Public health experts have been blowing whistles too. Trump has simply ignored all this because he believes that he is “the expert” and that he knows more than the experts.

One who keeps claiming that the US is “magnificently prepared”. Yet when the WHO and various countries offered to supply the US with test kits, Trump turned them down in favour of a made-in-America test kit. This is still a disaster that has left the US 6 weeks behind in testing people. Once the testing capabilities begin ramping up in the next few weeks, the true number of infected people will become much clearer and the extent of the problem will begin to hit home. The US is going to begin to look more like Italy, rather than Korea.

Trump continues to try to control the message, painting a rosy picture, even while all around him, chaos is expanding. He is still claiming that he has this “under control”.

Of course, not everything is Trump’s fault. The fact that the US has such a disjointed, expensive and ineffective health care system also contributes to the poor response.

The very high US debt levels are going to contribute to the economic fallout (though they do not effect the actual health crisis).

And the Fed has very few bullets left to use, as they have squandered them, owing to political pressure.
They are simply using what little they have left.

Soon , Mexico and Canada will have to close their borders to prevent the large numbers of infected Americans from entering their countries.

Good luck America. You’re going to need it. My condolences.

killben
killben

The Fed is essentially a two-trick pony (interest rate, printing press). With this they acted like gods. This is their comeuppance.

Casual_Observer
Casual_Observer

Just waiting for the tsunami followed by deluge of cases. The only thing that has worked is a full quarantine in China, South Korea, Singapore and Hong Kong. Italy and Iran didnt quarantine quickly enough and other parts of Europe are making the same mistake. We will know in 2 weeks how bad this will get. It feels like waiting for a tsunami.

Jojo
Jojo

I am going to drive up to the SF Fed on Monday and see if I can borrow $1,000,000, now that interest rates have dropped so much!

Otherwise, whether the interest rates are 0, 1, 2, 3, or 4% makes little difference to me or most consumers.

RayLopez
RayLopez

The Fed is in panic mode. Luckily, money is largely neutral says the evidence (Google this, Bernanke et al's FAVAR paper) so the Fed, aside from influencing day traders, has no real effect on the economy (sorry Austrians). The only effect of the Fed is to rob Peter (taxpayer who has to assume more govt debt long term) to pay Paul (zombie creditors), but that can is kicked down the road.

crazyworld
crazyworld

If no miracle covid-19 cure is found and distributed right now, prepare yourself for a doubling of the FED balance sheet and wide use of negative interest rates like in Europe.

In less than two year or so, another 5 trillions of treasury assets will probably appear on the FED balance sheet in order to keep treasury bond and bills interest rate around zero, but as they explain so well that it is temporary, that is not debt monetization….

truthseeker
truthseeker

Good grief Mish how can the market even open today? With pure panic there will be absolutely no buyers no liquidity scary ......

Tengen
Tengen

Futures still looking rough and the Nikkei just fell 700 points in the last hour or so.

Since the Fed just missed badly with Ben's bazooka, will they fire up his helicopter and start raining money on anybody other than bankers?

JonSellers
JonSellers

This means the Fed has talked to the major banks and one or more are going to collapse shortly if the Fed doesn't step in and cover them. The Fed is getting ahead of the curve, unlike 2008. But don't be confused, this is the financial system panicking. If they are, you might want to consider it too.

Herkie
Herkie

Just woke up and all I can say is HOLY SHIT!

Gasoline down to 69 cents per gallon, oil at $29, gold down almost $58 bucks.

EVERYTHING is going to open lower.

CautiousObserver
CautiousObserver

It remains to be seen if they fired all their bullets or if they blew up the breach of their gun.

Carl_R
Carl_R

I decided to sell some volatility today, and added some SVXY. I'm thinking we may settle into a bear market, but we should hit some support at 16-18,000 on the Dow, and volatility will decline.

aqualech
aqualech

For Heaven's sake, stawks are still over-valued. People shouldn't be surprised that they are still going down. I think the Fed's problem is that the guys who control them are neck deep in derivatives and either wanting to be paid in full or needing some big handouts in order to pay out on their derivatives gone bad. The guys that control the Fed are surely profiting during this chaos.

Herkie
Herkie

Breaking news at CNBC:

Fed says it will offer an additional $500 billion in overnight repo funding markets

ANOTHER half trillion. Total now announced $2.7 trillion.

Wow, being rich is nice work if you can get it.

dagnyg
dagnyg

Arizona Governor orders all schools in the state closed until March 27

Herkie
Herkie

Now Kudlow says the federal government is ready to pur $400 billion more into the economy, almost half a trillion that would not have been necessary had they just done the right things regarding the virus early on instead of telling people it was just a cold, or buy the dips. Stick a fork in this country, it is done.


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