Jim,
This is breaking news. Fed just cutted 100bp again before the scheduled meeting this week.
We are close to zero rates now in the US.
Regards
James
by Tyler Durden
Sun, 03/15/2020 - 17:13
With Wall Street desperate for the Fed to announce emergency measures on Sunday (after disappointing last week), and ideally before the futures open, Jerome Powell did not disappoint and moments ago the Fed announced a barrage of emergency measures which included:
[i]Welcome back ZIRP: Fed cuts rates by 100bps to 0-25bps from 1.00 -1.25bps. This is in addition to the 50bps rate cut on March 3, which means that in just under two weeks the Fed has cut rates by 150bps to zero.
Fed officially launches QE5 (no more “Non-QE” bullshit), consisting of “at least” $500BN in Treasury purchases and $200 billion in MBS.
Boosting intraday liquidity: The Fed announces Measures related to the discount window, intraday credit, bank capital and liquidity buffers, reserve requirements, and—in coordination with other central banks—the U.S. dollar liquidity swap line arrangements
Reserve requirements cut to zero: The Fed cuts reserve requirement ratios to zero percent effective on March 26.
Coordinated swap lines: The Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank, the Federal Reserve, and the Swiss National Bank announced a coordinated action to enhance the provision of liquidity via the standing U.S. dollar liquidity swap line arrangements. The pricing on the dollar liquidity swap arrangements is cut by 25 basis points, so the new rate will be the US dollar overnight index swap (OIS) rate plus 25 basis points.[/i]
Amusingly, the Fed announces that the emergency action wasn’t unilateral, with Loretta J. Mester voting against the action, as she 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.”
With all due respect to Thursday’s massive repo expansion, this is the Fed’s bazooka. It also means that after this, the Fed - which just cut rates to zero and launched QE5 - is now out of ammo, as Powell will have to cut rates to negative next and/or buy stocks outright for further monetary stimulus, something that would require the permission of Congress. And since that is unlikely absent a total collapse in the financial system, we are now down to fiscal stimulus and US politicians acting in a bipartisan fashion. Which may be a huge gamble.
Curiously, in this barrage of emergency actions, the one which arguably was most needed, a commercial paper facility, was missing. As such, it wouldn’t be unthinkable to see the dollar funding squeeze worsen after the initial euphoria fades on Monday despite the launch of enhanced global swap lines.
The good news is that at least there is nothing more the Fed can announce on Wednesday, absent buying single stocks and ETFs of course, and as such all attention will now be on Congress and what additional fiscal stimulus the Fed can push through.
