Can't wait for another four days! Fed announces interest rate cut of 100 bps, the biggest move ever

The Federal Reserve announced an emergency cut in interest rates by 100 basis points to a level of 0-0.25%, and announced the launch of a $ 700 billion scale-up easing program.

This was certainly the biggest move in Federal Reserve’s history. During the financial crisis of 2008, the Federal Reserve ’s package of stimulus measures was implemented within a few months. However, this move includes multiple plans, interest rate cuts and quantitative easing policies, but all were completed within a day, and only 12 days after the last emergency rate cut.

The bulls didn't seem happy ...

Spot gold jumped 1.4% at the opening and gapped above $ 20. Then it once expanded the gain to nearly 3% and broke $ 1570. However, it dropped sharply after a few minutes and gave up all the gains. Spot silver rose 1.44% and once returned to the $ 15 mark, but failed to stand firm.

The oil market continued its decline last week, and WTI crude oil fell to 10%, falling below $ 30 / barrel.

In forex market, the US dollar index fell short-term at the moment of the interest rate cut announcement, and then stood firm; the USD / JPY fell below 106, a drop of 1.93%.

The stock bond market also reacted violently. US stock index futures fell sharply, and US stock index futures continued to fall, triggering trading restrictions. U.S. Treasury futures yields have risen. During Fed Chairman Powell's speech, US 10-year Treasury futures gave up gains.

Why can’t Fed wait for another 4 days?

The Fed is scheduled to hold a March interest rate resolution on Thursday. However, the Fed decided to move ahead in order to comfort the market and protect the economy from the US dollar depreciation.

The Fed said the outbreak of the coronavirus has hit many communities and disrupted economic activity in many countries, including the United States, and cutting interest rates will protect the economy from the devaluation of the dollar and the virus.

How severe is the U.S. outbreak?

On Friday, President Trump announced a "national emergency" in response to a coronavirus outbreak. CNN reported on Sunday that according to data from the US national and local health agencies, the government, and the US Centers for Disease Control and Prevention (CDC), a total of 2,816 confirmed cases of coronavirus in the United States and a total of 58 deaths have been reported .

More and more Wall Street forecasters predict that the U.S. economy will fall into recession in the first half of this year, and the form of recovery depends largely on how local, state and federal health officials can reduce the spread of the virus. The chief economist of Goldman Sachs said that due to the impact of the epidemic, the US's 2020 full-year GDP growth rate is expected to be only 0.4%, and the US first-quarter GDP growth rate is expected to be reduced from 0.7% to 0, and the economy will shrink in the second quarter 5 %.

 0 interest rate era is coming, Trump is the one who celebrates

In the past two weeks, the Fed has taken several actions, including a 50-bp cut in emergency interest rates and the expansion of overnight credit products or repurchases in the financial system to $ 1.5 trillion. Now, cutting interest rates ahead of time means that the Fed has officially entered the era of zero interest rates.

In addition, the Federal Reserve said that in the central bank's coordinated global actions, the Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank and the Swiss National Bank have taken actions to increase the liquidity of the US dollar and implemented it globally through existing US dollar swap arrangements transaction.

The Fed added in its statement that it intends to use all of its tools to support the flow of credit to households and businesses, thereby promoting its maximum employment and price stability goals.

It is worth noting that, according to the Wall Street Journal, last weekend US President Trump stepped up criticism of the Federal Reserve on Saturday and said he has the power to fire or demote Fed Chairman Powell, although the Fed is expected to cut interest rates next week. Trump stated at the time,

"So far, Powell has made a lot of bad decisions. The Fed should follow the example of central banks in other countries to lower interest rates."

After this emergency rate cut, Trump said he was "very happy" with the Federal Reserve's emergency rate cut.

Press conference highlights these five key points

At a news conference, Fed Chairman Powell said that coronavirus has a profound impact on the American people, and the epidemic may drag down inflation this year. The US economy had a solid foundation before the outbreak. However, due to the impact of the epidemic, the US economy may weaken in the second quarter. In addition, weakness in foreign countries will hit US exports for some time.

Asked about expanding debt purchases, Powell said that debt purchases can create a more accommodative environment and asset purchases are designed to support credit availability. There is no upper limit to the size of weekly or monthly asset purchases. The Fed will "strengthen" buy assets. I am not interested in whether the Fed's asset purchase plan is defined as quantitative easing.

Powell also said that forward-looking guidance and asset purchases are basic tools of the Federal Reserve, but that negative interest rates are not expected to be appropriate policies in the United States. The Fed has no tools to target individuals and small businesses.

The Fed considers fiscal responses to be crucial and hopes they are effective. Fiscal policy is the way for more targeted relief measures in real time.

Of particular note, Powell said today's Federal Open Market Committee meeting replaces Wednesday's meeting. In other words, the Federal Open Market Committee (FOMC) will be cancelled.

Market analysis

Despite the Fed's good intentions, the market believes that this rate cut is wrong. Market analysis believes that the Federal Reserve cannot solve the epidemic through interest rate cuts or quantitative easing. They should wait until the peak is over before stimulating the economic recovery.

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