The powerful actions of the Fed did not save the markets

16.03.2020 10:09|Conotoxia Ltd Analyst Team

Once again in March, the Fed decided to act, in addition to its regular meeting. We would like to remind you that the meeting was to be held on March 17-18, and the market expected the Federal Reserve to cut the federal funds rate range by 1 percentage point to 0.00-0.25 percent. The Fed did it on Sunday evening and added further action.

In a statement for interest rate decisions, the FOMC announced that it expects this target range to be maintained until it is certain that the economy has survived recent events and is on track to achieve maximum employment and price stability goals. Current actions will help support economic activity, strong conditions on the labor market and return inflation to the symmetrical goal of the 2% - says the Fed. However, this does not end there. In addition, to support the smooth functioning of the Treasury and mortgage-backed agency (MBS) markets, which are essential for the flow of credit to households and enterprises, the Committee will increase its Treasury securities holdings by at least USD 500 billion in the coming months USD billion and MBS of at least USD 200 billion. So we have QE4 running.

Further, the Fed decided to lower the required reserves ratio to zero, which means creating "full" money in the banking system. As stated in the statement, this action eliminates reserve requirements for thousands of depository institutions and will help support lending to households and enterprises.

At the end of the weekend, RBNZ also decided to cut interest rates, cutting interest rates in New Zealand from 1 percent to 0.25 percent. RBNZ added that the current interest rate will apply for at least 12 months and the effects of the coronavirus outbreak will be very significant. The Bank of Japan, in turn, did not decide to cut interest rates, but doubled the target of net purchases of funds on the stock market to 12 trillion yen (USD 112 billion).

Such actions, however, do not help the stock indexes, which seem to be dropping by a few percent. In the US, in turn, the futures trade was suspended after a 5% drop and investors are waiting for the cash market to open.


Daniel Kostecki, Chief Analyst Conotoxia Ltd.

Materials, analysis and opinions contained, referenced or provided herein are intended solely for informational and educational purposes. Personal opinion of the author does not represent and should not be constructed as a statement or an investment advice made by Conotoxia Ltd. All indiscriminate reliance on illustrative or informational materials may lead to losses. Past performance is not a reliable indicator of future results.

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