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Edit: looks like I was wrong about this being the Fed's biggest tool to correct the market. See below. The 0% interest rate cut was supposed to be the last bul
by adtac 7y ago
Edit: looks like I was wrong about this being the Fed's biggest tool to correct the market. See below.
The 0% interest rate cut was supposed to be the last bullet and the Fed has very likely used it up too early. I suspect there was pressure from Trump to do something right this instant, because I don't see the Fed doing this out of their own accord. Possibly election related, we'll never know.
What can they do now? Negative interest rates? Everybody will withdraw their accounts at the same time. Combining this with the zero reserve requirements that was put into force for most banks, this is a recipe for a disaster unlike any we've seen before.
- mech1234 7y agoThe zero reserve requirements are intended to prevent the problems caused by a potential bank run. Once the economy is running smoothly again, reserve requirements will be made more stringent again. It seems likely that the Fed is more well informed of how quickly lending is drying up than most people are, and their injection of ~$1.5 trillion must have been prudent. QE was the bullet the Fed still had in 2008, and it is the bullet the Fed still has in 2020. It seems that QE worked better than the negative interest rates Europe used.
- thawaway1837 7y agoDidn’t they also announce a QE program of 700Bn?
- martythemaniak 7y agoThe reasoning I read is that this is the Fed basically passing the buck and saying "we're done, we can't and won't do more" and telling congress it's Fiscal Stimulus time.
- JumpCrisscross 7y ago> The 0% interest rate cut was supposed to be the last bullet Not really. > What can they do now? The Fed has a vast array of tools, the Fed Funds rate being only one. Open market activities, interest on excess reserves, QE (i.e. non-Treasury asset purchases), discount window lending, et cetera remain.
- thawaway1837 7y agoDidn’t they also announce a QE program of at least 700Bn? Fed funds rate at 0 and QE worth at least 700Bn resulted in an 8% S&P drop so far. I’m not sure how much more effective the remaining monetary tools can be.
- yulaow 7y agoThey still have elicopter money. It will be quite unpopular in the US but I think they are gonna try it if the situation gets really bad
- PragmaticPulp 7y ago> The 0% interest rate cut was supposed to be the last bullet and the Fed has very likely used it up too early. The Federal Reserve isn't the only lever the government can pull to modulate this. Expect to see some fiscal policy measures implemented soon. I wouldn't be surprised if Americans start receiving checks in the mail at some point.
- londons_explore 7y ago"Thanks for being a citizen. Have $1000." Sounds a lot like a Universal Basic Income...
- jumbopapa 7y agoI think handing out checks during a crisis is vastly different than doing it all the time.
- a3n 7y agoIt is, but it still "sounds a lot like." Not exactly like, but a lot like.
- PragmaticPulp 7y ago> Sounds a lot like a Universal Basic Income... Completely different. Compensating people for an obvious widespread crisis is more like insurance targeted at a specific event. If we had UBI, the government would still need to inject additional payments in to the economy on top of the regular UBI payments. The goal is to provide income that people haven't already budgeted for.
- zentiggr 7y agoWouldn't the more effective point be to provide critical capital for smaller companies that might not be able to afford operating expenses while revenue is short? I guess zero interest loans could cover parts of this but defaulting over a slow restart would still be a risk. I'm not enough of a money person to know what could be done there.