14 ms·

Fed cuts half point in emergency move amid spreading virus

364 points by a2h 7y ago

vmchale 7y ago
Wish the coronavirus czar had the same urgency...
timroman 7y ago
Bringing a fire truck to a bank robbery
- ohazi 7y ago
  Eh... maybe more like bringing a SWAT team to a brush fire.
  - rolltiide 7y ago
    what part of the prior analogy made you think this one was better, and so much better to actually post? cynical, but genuinely curious I like the imagery of fire hydrants spraying water on an issue that is ongoing and unresolved while the vaults become hollow and worth nothing.
    - ratfaced-guy 7y ago
      Less syllables, rolls of the tongue better.
- nine_zeros 7y ago
  Accurate assessment
- justinzollars 7y ago
  How does a half-point help us if Costco is out of toilet paper?
  - gonzo41 7y ago
    You can afford to install a bidet
    - ptyyy 7y ago
      I just installed a Tushy and let me tell you, it takes some getting used to. Especially when the water is very cold.
      - companyhen 7y ago
        Did you get the one with the water heater though?
      - vorpalhex 7y ago
        Should of gone for the heated BioBidet...
      - philsnow 7y ago
        Try cold showers for a week or so. Not lukewarm, cold. You won't care about the cold bidet anymore, I promise.
      - Johnny555 7y ago
        Should have gone with a Toto Washlet with water warmer. Cold water sounds like a bad idea for this purpose.
- Symmetry 7y ago
  The Coronavirus is going to harm the economy no matter what. But if the Fed acts correctly it can prevent compounding effects like an increase in unemployment that leads to a further decrease in production.
- m3kw9 7y ago
  More like using one bucket of water when you have a massive bush fire.
seoulbran 7y ago
3-2-1, bull market returns. (I hope)
- lisper 7y ago
  Why? Are you retired? Because if you aren't, if you're working and putting money into a retirement plan, you are much better off with a bear market, especially one like this that is practically guaranteed not to run for years. When you're a buyer you want prices to be low.
  - war1025 7y ago
    Not all people buy stocks just for retirement.
  - z9e 7y ago
    Perhaps this person bought stocks outside of their 401k when it was low and is excited about another run of high returns.
  - wonderwonder 7y ago
    Except people lose their jobs in a bear market.
  - repsilat 7y ago
    This assumes a return to trend, right? If stocks are temporarily depressed you can get them at a discount. If stock prices are permanently lower as a result, though, it's certainly not good for you. And, believe it or not, this is probably the more accepted idea -- that price movements are memoryless, that we shouldn't subscribe to the gamblers fallacy (that down today means up tomorrow), and that being happy for a price drop is a form of timing the market, which is frowned upon. I don't fully buy it, but it's worth thinking about.
    - lisper 7y ago
      > If stock prices are permanently lower The only way that can happen is if the economy is permanently less productive. There are things that can make that happen (climate change, for example) but the corona virus is not among them. Fear of the virus is causing vastly more damage than the virus itself. The virus itself is mainly killing old, unproductive people. I don't want to minimize the severity of the problem or the emotional pain of people who have lost loved ones, but in terms of long-term economic impact the corona virus is really not a problem.
ptyyy 7y ago
We're basically running out of tools to combat an actual financial crisis. https://www.investopedia.com/terms/l/liquiditytrap.asp https://www.investopedia.com/terms/l/liquiditytrap.asp
- thedudeabides5 7y ago
  Hey look on the bright side, we have another 100bps left in rates and then QE4. After that, yeah then it gets tough, but then again, maybe we get some actual fiscal stimulus which maybe buys the US some China style infrastructure!
  - andreilys 7y ago
    We will likely see negative interest rates before the Fed decides to raise
  - Symmetry 7y ago
    We could always just end the practice of paying interest on excess reserves which the Fed started when they thought banks were collapsing but there wasn't any economic downturn back in 2008, so they needed to get the banks not to lend out the money they were pumping into them somehow. The Fed's inflation models have been predicting higher inflation than we've seen ever since. Currently the interest on required reserves (IORR) and interested on excess reserves (IOER) are both 1.6%, well above the Fed lending rate of 1.25%.
  - bluedevil2k 7y ago
    A fiscal stimulus? Yes, let's go even more into debt than we already are.
    - learc83 7y ago
      It doesn't matter how much debt we are in provided the rate of return for the investment is greater than the interest on the new debt. And that's without considering that inflation is very low, so we can print our way out of some of it.
pastor_elm 7y ago
>The Fed also said in the statement that the “fundamentals of the U.S. economy remain strong.” So why cut the rate? Doesn't make any sense.
- Angostura 7y ago
  Because you can have a fundamentally strong economy, but nonetheless having up to 1/5th of you workforce off simultaneously (UK govt worse case) could cause business difficulties?)
- saber6 7y ago
  Why does it not make sense? Interest rates are incentives. You want a balance between too hot (inflation) and too cool (deflation). Ideally with low single digit inflation to encourage investment rather than pure savings.
- wonderwonder 7y ago
  Because someone at the top with a limited grasp of economics but a great understanding of campaigning insisted on it.
  - lonelappde 7y ago
    The Fed is independent of the Executive except at appointment time.
    - wonderwonder 7y ago
      Theoretically yes, but all except one are Trump appointees and the main thing he looks for is loyalty. In addition, the threat of getting publicly hammered and humiliated by the president is often enough to make someone think twice before not doing what he asks.
    - jjoonathan 7y ago
      Like the Judiciary is independent of the Executive and provides a check and balance to its power?
vnchr 7y ago
The Dow finished up 1,294 points yesterday, making it its best one-day point gain on record.
- howlin 7y ago
  It's best to follow the SP500 rather than the Dow. The former is much more representative of the whole market. And it's best to follow market movement in percentage rather than points. Points inflate over time as the nominal value of the market indexes climb.
  - stevenwliao 7y ago
    I can't wait for the SP500 to replace the Dow in news reporting.
- lonelappde 7y ago
  "point gains" is a vanity metrics. Percentage matters
- cat199 7y ago
  and what's the 3 day / 5 day trend? giant gains are not so important after giant losses, this is just celebrating volatility.
- govg 7y ago
  The DJIA is not as good a metric compared to say, S&P500. It considers a 1$ move in any of the constituents in the same manner, so a stock worth 200$ moving up by 1$ is given the same importance in terms of points change in the index value as a stock worth 2$ moving up by 1$ (whereas fundamentally speaking, the second movement is far more interesting than the first).
wonderwonder 7y ago
We are burning all of our fuel to ensure we are running at record levels and when a real problem rears its head, we are going to be dry.
- muttled 7y ago
  The fallout will either fall on a second term or during someone else's first term. Either way the administration doesn't care.
  - SN76477 7y ago
    Exactly this.
  - katmannthree 7y ago
    November is still more than six months away. Given how quickly COVID-19 spreads I think our economy will likely be feeling the pain long before the election.
    - wonderwonder 7y ago
      You are not wrong, and I do think that on the individual level, company employees will feel it. Unemployment may go up. This administration though uses the stock market as their barometer so if they are able claim that the S&P and DJIA are up they can claim victory. There are a lot of things they can do to keep stocks artificially inflated such as more rate cuts, corp. tax cuts, removing regulations, reducing the capital banks are required to keep on hand, etc. All of these can work towards keeping stocks high for a limited time but do essentially nothing for the normal person. At that point then its just a race between when the election occurs and when the market no longer responds to the artificial scaffolding. I have no doubt this administration will hesitate for even a second if they are able to implement a feature that results in short term (through November) gains at the cost of long term ruin.
- harryh 7y ago
  This is not accurate. See: https://www.themoneyillusion.com/the-actual-ammunition-issue/ https://www.themoneyillusion.com/the-actual-ammunition-issue...
scarmig 7y ago
Keeping the party going by drinking rubbing alcohol. What would be hilarious/terrible is if this attempt to juice the markets doesn't prevent a sea of red at EOD.
rhexs 7y ago
This will further increase housing prices, no? How much more unobtainable for the average American could they possibly get? I suppose negative interest rates will let us know shortly!
- thedance 7y ago
  Don’t worry, literally every single one of the presidential candidates in the democratic primary wants to “build wealth” by making housing ever more expensive. It’s practically state policy to make it impossible for a first-time buyer.
  - elicash 7y ago
    The entire point of housing policy at the local level, where it matters, is to make housing more expensive because people's wealth is in their homes and they're relying on housing prices to rise steadily. Renters have less political power.
    - thedance 7y ago
      Local policy is broken but I’m not convinced that it dominates. The Feds have the mortgage interest deduction and Fanny, which both stimulate the demand side very greatly.
      - elicash 7y ago
        Aren't significantly fewer (tens of millions?) people taking the mortgage interest deduction due to tax reform that doubled the standard deduction? Doesn't seem to have driven a collapse in housing costs. We need more density in low-density areas of cities. Allow people to have multi-family homes if they choose it.
  - holtalanm 7y ago
    at the risk of getting into a political debate on the internet: I hadn't heard this. Do you have any sources backing up this claim?
hsnewman 7y ago
I'm retired and mostly not in the market. I won't invest in the market while it is overpriced. With such low interest rates, what is a safe investment?
- airstrike 7y ago
  Defensive, boring, high-dividend stocks?
- sand_castles 7y ago
  There is no interest without risk. I suggest Iranian, Argentinian bonds if you really want to get that blood flowing.
  - xeromal 7y ago
    I wonder if syrian bonds are available?
- lonelappde 7y ago
  invest in a new innovation that cures or mitigates covid-19, or cash and take your lumps. Money is a shared delusion; you can't force it to grow or retain value. Enjoy the net win factoring in the last 10years.
- fourstar 7y ago
  BTC.
- misja111 7y ago
  If you believe the market is overpriced you could consider investing in long term put options.
- companyhen 7y ago
  BTC and ETH is worth a few % of your portfolio depending on your risk tolerance. :)
- natex 7y ago
  The business cycle has been on the down turn for a few months now (though folks are just now beginning to notice it). Historically, Treasuries, long-term GOV'T bonds, and gold perform well during this part of the cycle. If you must have equities, utilities and REITs perform well but only in relation to other S&P stocks.
airstrike 7y ago
From what I gather after spending more time than I'm willing to admit listening to every finance talking head out there, the consensus on the street seems to be that this will result in a temporary market recovery followed by the continued deterioration of stock prices given that fiscal or monetary* policy can't really affect the real economy in the near term* i.e. if the supply chain is indeed impacted due to COVID-19, no amount of fiscal or monetary* stimulus can make up for the time / productivity losses in the near term* On the margin, I'm still slightly bearish on the whole situation due to the combination of the virus' absurdly high infection rate[0] and its long incubation period (I'll let each one of you be the judge of how long that is...) [0] https://duckduckgo.com/?q=infection+rate+sars+vs+coronavirus&ia=images&iax=images https://duckduckgo.com/?q=infection+rate+sars+vs+coronavirus...
- deleted 7y ago
  [deleted]
- ithinkinstereo 7y ago
  > if the supply chain is indeed impacted Is there any question? 80% of the Chinese workforce has been sitting on the sidelines since mid-January. Production is just barely ramping up and I don't think we'll see full capacity until well into April, provided that COVID19 is truly contained/managed. Edit: not sure about the downvotes. Here's a source about Foxconn production: https://twitter.com/onlyyoontv/status/1234855310428430337 https://twitter.com/onlyyoontv/status/1234855310428430337
  - airstrike 7y ago
    The question at the moment is whether the impact is prolonged enough to affect more than 1-2 quarters worth of business, and how quickly we can recover from this. Can Foxconn plants in China work double time to make enough iPhones for Fall / Winter sales? Your guess is as good as mine...
  - yumraj 7y ago
    And, if they try to ramp up the production too quickly, will we see a return of Covid-19 due to people in close proximity again?
mech1234 7y ago
Interest rates have been on a secular decline over the course of the last century. Different economists have described this via various terms- "savings glut" is the one I like the most (even though I don't like Krugman). Right now there is so much saved cash out there looking to be lent out that any project looking for financing can find it for cheap. The Fed does not keep interest rates low in a vacuum. There is an auction system that determines real rates. If the Fed is not able to sell all their bonds at the target rate, they have to adjust. In the long run, I think we will see: 1. (at risk of calling this bull market a "new normal") P/E ratios for stock will continue to climb in a secular fashion. Low returns from the alternative investment of bonds will dictate high P/E ratios. 2. Debt financing will remain cheap. Low interest rates signal cash that is desperate to find a place to park it. 3. Government debt will remain popular and affordable. This is a win for Keynesians. 4. Secular low interest rates are an indicator of a stable and mature economy, which is good. The bad part is that they signal a world where obvious available capital investment projects are missing- we seem to have picked the low hanging fruit. 5. Next recession the U.S. will hit the zero lower bound, and we will see lots of QE and/or nominal negative interest rates through some institutional mechanism. 6. Increasing government deficits look better when interest rates are low. 7. Speculative: Deficit spending can increase indefinitely if real interest rates are below 0 (aka nominal rates are below inflation). To put it in other terms: Any deficit spending is free money up until the point that it causes inflation to rise about the nominal interest rate.
- budlightvirus 7y ago
  What does "secular" mean to you?
  - ejstronge 7y ago
    'Secular' has multiple definitions; this one refers to a non-cyclical trend: https://www.lexico.com/en/definition/secular https://www.lexico.com/en/definition/secular
  - mywittyname 7y ago
    From context, the OP is using it to mean, over a period of time.
ithinkinstereo 7y ago
Most of the risks to the economy posed by COVID19 are supply side. How is a rate cute going to help? It seems like the main consequence of this in the near term is an increase in inflation.
flyGuyOnTheSly 7y ago
Does this mean the meeting on march 18th (where there was almost a 100% chance of a rate cut going through) is not happening anymore? [0] I can't tell if they've just not yet updated that page. [0] https://www.cmegroup.com/trading/interest-rates/countdown-to-fomc.html https://www.cmegroup.com/trading/interest-rates/countdown-to...
- Donald 7y ago
  The market is pricing in an additional rate cut at that meeting
aazaa 7y ago
For those saying the Fed is running out of ammunition, study what the Bank of Japan has done. It owns close to 80% of the Japanese ETF market currently, with no end to the expansion of balance sheet in sight. After buying long treasuries, it's not unreasonable to imagine the Fed buying stocks, either individual issues or ETFs. The President would be for it, and it would be hard to drum up any opposition to it in congress. Not only that, but rates on long treasuries have stayed negative for long periods of time in other countries. It's an open question how negative long treasuries can go, but the evidence suggests we're not even close to the limit. Recessions are politically unacceptable in today's world. Buy stocks. Buy treasuries. Do so with wild abandon, because the Fed has your back. Just watch out for the moment when the whole thing jumps into reverse and no amount of market manipulation will stop the bleeding.
- deleted 7y ago
  [deleted]
- rbinv 7y ago
  What would be the endgame here?
  - scarmig 7y ago
    A long-lived Nikkei-style "bull run."
  - aazaa 7y ago
    I suspect it will nurture a massive structural problem few today would understand or care much about. It will be allowed to grow unabated because, frankly, there will be bigger fish to fry. Maybe a little like subprime leading up to 2008. The problem was written off by just about everyone who bothered to look, until something snapped and it was the only thing that mattered. We may be seeing the start of this in the repo market, which once again had a convulsion today. I doubt many care about it or really understand it, and that goes double for policy makers.
  - mullingitover 7y ago
    What's the term for when the government owns all the industries?
deleted 7y ago
[deleted]
_marlowe_ 7y ago
This is a supply shock. Cutting interest rates won't make widgets appear if the widget factory is idle...
- _marlowe_ 7y ago
  I'm not sure why I was downvoted. https://www.marketplace.org/2020/02/18/coronavirus-warnings-from-apple-nintendo-and-nissan-kindle-supply-shock-fears/ https://www.marketplace.org/2020/02/18/coronavirus-warnings-...
  - rolltiide 7y ago
    everyone is equally as confused as its the same user experience for everyone that comments but protip, talking about downvotes just opens a spiral of more downvotes until you criticize the site rules and get shadowbanned. taking one for the team!
eanzenberg 7y ago
In these comments: hopeful wishing of the demise of the US economy.
throwaway5752 7y ago
This is not solving the problem which is 1) the US is drastically behind in testing the population 2) it will not fix disrupted international supply chains 3) it will not fix liquidity crises at health insurers, hospitals, and life insurers and 4) it will not fix demand if people do not want to go shopping at any price because of non-financial concerns. I presume the Fed knows this, and what worse is this seems to be due to political pressure. Finally, when this does not work, it will reduce peoples' faith in the Fed.
- scarmig 7y ago
  Hey now! SPY is up 0.01% at the news!
- snarf21 7y ago
  People have faith in the Fed? You are right though, this is political to slow a market correction to where it actually should be. We just keep spinning more plates. What we really need if fiscal policy plans, not monetary. We have so many zombie companies that are on life support and we need to let them die but it won't happen with 0% rates.
  - seganddr 7y ago
    The US federal reserve are the best in the world at what they do IMO.
- ajross 7y ago
  It won't fix any of those, but it will smooth the impact of 1, 2, and 4 over a longer period, which has value. And it absolutely does treat 3 directly, though obviously there is a balance sheet problem with insurers (not the same thing as a liquidity problem!) that will need to be treated by some kind of a bailout eventually. People are being too rigid here: this isn't a perfect policy but it's not an inherently bad idea. You use monentary policy to buffer shocks to the economy, and in that regime it's best used early and with agility. I think the Fed is fine here, though I agree that this is a very minor side plot in a much larger story.
ck2 7y ago
So every safety in our country and economy is now disabled, air and water regulations food regulations,taxes cut to flatline levels for industry, all in the name of profit. Now the monetary system is being tampered with further. All reserves are gone. Imagine trying to climb out of this ditch if something really bad happened (like say a million people die).
ngngngng 7y ago
So should I wait a week and then refinance my houses?
- JMTQp8lwXL 7y ago
  The effects to the mortgage market aren't immediate, but should follow on soon. I'd keep an eye on current rates and observe the fall before signing any paperwork.
tlb 7y ago
It's well-understand how low interest rates boost the economy in the medium- and long-term. Companies deploy cheap capital to build new factories, and consumers buy more appliances, cars, and houses. What short term behavior changes do emergency rate cuts cause to boost the economy? Are there capital projects that can get started in weeks, that were previously shelved because the rates were 0.5% too high, but are now viable? What sort of projects would these be?
- shdh 7y ago
  > Companies deploy cheap capital to build new factories Have we actually seen investment though? Or have we seen mostly stock buybacks?
yumraj 7y ago
China started with single digit cases, which then spread countrywide with tens of thousands of cases and many deaths. They quarantined cities, built 1000 bed hospitals in 10 days. And now after about 2 months they are seeing a slowdown. Why would this exact scenario regarding growth in the number of cases not play out in the US? The only difference is smaller population, but cities are dense here too. However, unlike China, I don't think US and other countries will be able to quarantine entire cities. They only hope IMHO is that the virus becomes less virulent with as summer approaches.
- unreal37 7y ago
  Apparently China will have a massive economic cost to this. "New data on China that has trickled in over the last few days suggests the damage coronavirus has wrought on the world’s second-largest economy could be worse and more prolonged than previously expected, despite a decline this week in the number of new infections in the country." [0] https://business.financialpost.com/news/economy/five-signs-the-coronavirus-hit-on-the-chinese-economy-is-worse-than-expected https://business.financialpost.com/news/economy/five-signs-t...
  - AnimalMuppet 7y ago
    The cost of doing nothing may have been far higher, though.
- cprayingmantis 7y ago
  I think the thing that no one is looking at here is that nursing homes and elderly care centers are going to be hot beds for the the virus. From my understanding China and most of these Asian countries is that don't have nursing homes so the house can be isolated. Here in the US we concentrate the elderly in these nursing homes and hope for the best. Most CNAs don't have enough vacation or sick time to miss work so they will continue to come to work if they're feeling a little bad or have a slight fever and they will spread it despite everyone's vigilance.
  - tartoran 7y ago
vanniv 7y ago
This seems like a bad move. It isn't going to help, because it doesn't address the actual cause at all -- but it will help heighten the panic
coliveira 7y ago
This is a big mistake. There is nothing the Fed can do revive the economy from the Corona virus, because this is not a demand problem, it is a supply problem. The economy WILL slow down because the major parts of the economic chain have been considerably affected by this virus. You cannot use more money when there is less to buy and sell. This will happen simply because whatever solution to the virus disruption will take time to be implemented.
- MrPowers 7y ago
  I am always surprised when software engineers have such strong opinions on monetary policy. Black and white statements like "There is nothing the Fed can do revive the economy from the Corona virus" aren't the best for macroeconomics discussions that rely on imperfect information and multiple related variables. Your wording makes it sound like you know more about macro than the best minds in monetary policy.
  - JMTQp8lwXL 7y ago
    It's more than Software Engineers that perform armchair economic analysis. I wouldn't single them out. Anybody who's well-to-do and participates in markets has a direct interest in paying attention to the Fed and markets. Anybody in top 10% likely has good reason to pay attention.
  - Der_Einzige 7y ago
    Software engineers are uniquely qualified to analyze supply chains and supply chain problems. In this case, technical analysis looks a whole lot different than the chicken bone divination stuff you see with thinkorswim or other trading platforms...
    - Erlich_Bachman 7y ago
      > Software engineers are uniquely qualified to analyze supply chains and supply chain problems. Care to substantiate it? Why? At the very least businesspeople should be more qualified because that's what they deal with? Just because software engineers have to think for a living and do some math sometimes doesn't mean they are experts in every field where that is used...
ajphdiv 7y ago
I had some call options on Robinhood that I wanted to sell after the spike caused by this rate hike. Now I'm watching my gains slowly go away since Robinhood is down again. Two days in a row.
- rolltiide 7y ago
  and what lesson have you learned?
  - InterestBazinga 7y ago
    Trust an exchange with a Fancy UI.
chvid 7y ago
I like how you guys are pouring free money into the financial system while still asking $3000 if an uninsured person needs to be tested.
- OscarCunningham 7y ago
  This isn't free money.
interlocutor 7y ago
This abrupt move by the Fed betrays lack of knowledge of stock market psychology. Looking at how stocks are doing today you would not think that anything of interest has happened (no pun intended). The stock market psychology works on "buy on rumor, sell on news" principle. This is the reason there was a significant rally yesterday, and stocks are in negative territory today. What the Fed should have done is give signals that they are about to cut interest rates, then give stronger signals, then even stronger signals, then cut interest rate by 0.25% then repeat for the next 0.25%. Markets would have rallied multiple times for each good news signal.
- news_hacker 7y ago
  This is assuming that the fundamental trust in the market is still there though the global pandemic. It's hard to heal a deeper pessimism when it settles in, and the coronavirus has caused this, especially in the elderly. I think the Fed understands stock market psychology pretty well. I think they just didn't have a choice here.
- spectramax 7y ago
  > "buy on rumor, sell on news" Let me stop you right there - stock market is a multi-agent system with autonomous algorithms making micro decisions, cap managers doing strategic decisions, and everything in the middle. Add a bit of chaos theory. "Buy on rumor, sell on news" is an extremely simplified and naive rational for explaining how a stock market works. Most theories of how a stock market works have a built-in fallacy. If someone figured out how the stock market fluctuates, it would be ironed out by massive hedges.
  - interlocutor 7y ago
    There may not be one, precise and predictable way the stock market works, but buying on rumor, and selling on news is a very common, herd mentality that is easily observable, as seen yesterday (rumor) and today (news).
76543210 7y ago
I'm looking to refinance. If my lender says the rate hasn't changed from 3.25% since last week, that's bullshit Right? How long should I wait for the rates to move?
- throwaway3157 7y ago
  It looks like the rates actually went slightly up from a few days ago (though these depends on many variables, but I'm comparing to my local rate that I've been checking for weeks). Might change tomorrow based on today's news.
  - rubidium 7y ago
    How do you check your local rate?
    - throwaway3157 7y ago
      I use a website from a local private lender. It requires info about the kind of mortgage you want, the value of the property, your credit score, the zip code, etc. If you don't know where to look, you can start with Zillow's tool: https://www.zillow.com/mortgage-rates/ https://www.zillow.com/mortgage-rates/
- Spellman 7y ago
  Rates are pretty quick on responding. Here's where they stand today based on a survey of lenders, down to about 3.13%: http://www.mortgagenewsdaily.com/mortgage_rates/ http://www.mortgagenewsdaily.com/mortgage_rates/
- harryh 7y ago
  Mortgage rates do not move in lockstep with the fed overnight rate.
yters 7y ago
What if the reaction to the coronavirus is worse than the virus itself?
- b1ur 7y ago
  I agree to an extent. From a utilitarian standpoint, the economic damage caused by the virus is not outweighed by a mortality rate of 0.2%. That being said, coronavirus has the potential to become worse (more infections -> more mutation -> potential to mutate more aggressively or more resistant to our research) so minimizing infections is probably a good idea. Not to mention, people tend to get angry when you start assigning objective tangible value to human life.
cft 7y ago
I am wondering: what if this happened when the interest rates were zero?
auiya 7y ago
Imagine facing a global pandemic, and your first concern is how to profit from it.
zcase 7y ago
50 bps cut, initial rally, faded super fast and now down for the day. Would be interested to see if Fed cuts further. The first order effects weren't so large to stem the selloff (first order meaning the PV effect of lowering discount rate). As for second order effects (rate cuts to spur economic activity), I'm not even bullish about the mechanism to transmit rate cuts to the real economy normally, but I think in a quarantine situation, those mechanisms are even more diminished as there's less economic activity. Thinking out loud, demand will probably just hit a wall--there's no elasticity here when people are worried about their lives. The only mechanism that sounds plausible to flow through to the real economy is fiscal. Government buys Pampers, burns them, buys them again. Or keep lowering rates to raise asset prices by a purely mechanical lowering of discount factor.
pearjuice 7y ago
I don't want to sound overly negative but at least hedging with puts (and not gambling but sane expiry dates) against index funds isn't a bad idea. Cutting rates by a half point is panic football and won't fix the supply chain hiccups which will affect production and therefore consumption.
woeirua 7y ago
This is the start of the next Global Financial Crisis folks. It's not hard to see the pieces in motion now: 1 - The Q1 supply shock is going to be a temporary thing. They'll recover alright after causing some companies to miss their Q1 earnings. If this was the only effect, we would recover just fine here later this year, but... 2 - Coronavirus is just getting started in the US and Europe. If it spreads widely, and unabated, then the those countries will be forced to enact school closures, business closures, etc, which will cause a massive demand shock. 3 - Demand shock will tank airlines, cruises, restaurants, malls, etc. Basically anything that requires groups of people to make money. 4 - Eventually, demand shock will hit corporate balance sheets in a big way. Many corporations (especially in the energy industry) are overloaded with debt [1]. If this goes on long enough, then those companies will go bankrupt. 5 - If enough companies default on their debt simultaneously, then derivatives on corporate debt (defaults) will cause a systemic crisis again [2]. There's no guarantee that this will happen, but if it does it's going to make 2008 look like a joke by comparison. If it does, we need to do the right thing this time: wind down the banks and let them fail. For the downvoters: [1] https://www.nytimes.com/2018/09/01/opinion/the-next-financial-crisis-lurks-underground.html https://www.nytimes.com/2018/09/01/opinion/the-next-financia... [2] https://www.wsj.com/articles/in-a-blast-from-a-financial-crisis-past-synthetic-cdos-are-back-1503912601 https://www.wsj.com/articles/in-a-blast-from-a-financial-cri...
- seganddr 7y ago
  Please don't spread FUD. Please do provide references for your claims.
  - woeirua 7y ago
    This isn't FUD: https://www.wsj.com/articles/in-a-blast-from-a-financial-crisis-past-synthetic-cdos-are-back-1503912601 https://www.wsj.com/articles/in-a-blast-from-a-financial-cri...
- HenryKissinger 7y ago
  At some point between steps 4 and 5, shouldn't the government say, "maybe y'all shouldn't have leveraged yourselves so much; debt is inherently bad, and we won't bail you out this time; figure this out; and don't rack up so much debt next time"? This addiction to debt has got to stop, and unfortunately it sometimes takes cold, hard pain for some to learn a lesson.
freepor 7y ago
I wonder if economic indicators will temporary blip up because of stockpiling. I recently bought $1000 of food and supplies and books and toys for my kids if they get stuck indoors which would have normally taken me six months to buy.
tasty_freeze 7y ago
Pardon my cynicism, but it seems like many of the actions the administration is pushing are simply things they were pushing already and are using this health crisis as cudgel to help get what they want. What we need are lower interest rates! What we need is to limit immigration from Mexico (even though the US has a higher infection rate and there isn't any talk of limiting flights from, say, England). What we need to do is silence domain experts and have communications controlled by politicians at the White House. Maybe this rate cut is actually the right thing to do, what do I know? But I have little reason to believe it was made for the right reasons.
- dageshi 7y ago
  The administration doesn't direct interest rate policy, the FED does, within the context of the FED's mandate a rate drop isn't unexpected during an event like this.
  - SkyPuncher 7y ago
    > The administration doesn't direct interest rate policy, the FED does, Given that the administration choose exactly who leads the FED, they're not exactly independent either.
  - cmer 7y ago
    To be fair, Trump has been pushing the Fed around non-stop. They basically follow his indirect orders. All for political gain at the expense of the future. It's pretty pathetic.
  - tasty_freeze 7y ago
    That is how it is supposed to work. Over the past couple of years we have seen the President break with tradition and uses his megaphone to berate and belittle the fed to try and get what he wants. Of course we cannot know if the fed has ignored all that, but by appearances, the president seems to be having an influence.
- tachyonbeam 7y ago
  Agreed, I think many people in the administration and at the Fed were itching to cut rates for a while, and this is the perfect excuse to do what they were already planning to do.
neonate 7y ago
https://archive.md/MusGO https://archive.md/MusGO

364 points by a2h 7y ago

vmchale 7y ago

Wish the coronavirus czar had the same urgency...

timroman 7y ago

Bringing a fire truck to a bank robbery

ohazi 7y ago
Eh... maybe more like bringing a SWAT team to a brush fire.
- rolltiide 7y ago
  what part of the prior analogy made you think this one was better, and so much better to actually post? cynical, but genuinely curious I like the imagery of fire hydrants spraying water on an issue that is ongoing and unresolved while the vaults become hollow and worth nothing.
  - ratfaced-guy 7y ago
    Less syllables, rolls of the tongue better.
nine_zeros 7y ago
Accurate assessment
justinzollars 7y ago
How does a half-point help us if Costco is out of toilet paper?
- gonzo41 7y ago
  You can afford to install a bidet
  - ptyyy 7y ago
    I just installed a Tushy and let me tell you, it takes some getting used to. Especially when the water is very cold.
    - companyhen 7y ago
      Did you get the one with the water heater though?
    - vorpalhex 7y ago
      Should of gone for the heated BioBidet...
    - philsnow 7y ago
      Try cold showers for a week or so. Not lukewarm, cold. You won't care about the cold bidet anymore, I promise.
    - Johnny555 7y ago
      Should have gone with a Toto Washlet with water warmer. Cold water sounds like a bad idea for this purpose.
Symmetry 7y ago
The Coronavirus is going to harm the economy no matter what. But if the Fed acts correctly it can prevent compounding effects like an increase in unemployment that leads to a further decrease in production.
m3kw9 7y ago
More like using one bucket of water when you have a massive bush fire.

seoulbran 7y ago

3-2-1, bull market returns. (I hope)

lisper 7y ago
Why? Are you retired? Because if you aren't, if you're working and putting money into a retirement plan, you are much better off with a bear market, especially one like this that is practically guaranteed not to run for years. When you're a buyer you want prices to be low.
- war1025 7y ago
  Not all people buy stocks just for retirement.
- z9e 7y ago
  Perhaps this person bought stocks outside of their 401k when it was low and is excited about another run of high returns.
- wonderwonder 7y ago
  Except people lose their jobs in a bear market.
- repsilat 7y ago
  This assumes a return to trend, right? If stocks are temporarily depressed you can get them at a discount. If stock prices are permanently lower as a result, though, it's certainly not good for you. And, believe it or not, this is probably the more accepted idea -- that price movements are memoryless, that we shouldn't subscribe to the gamblers fallacy (that down today means up tomorrow), and that being happy for a price drop is a form of timing the market, which is frowned upon. I don't fully buy it, but it's worth thinking about.
  - lisper 7y ago
    > If stock prices are permanently lower The only way that can happen is if the economy is permanently less productive. There are things that can make that happen (climate change, for example) but the corona virus is not among them. Fear of the virus is causing vastly more damage than the virus itself. The virus itself is mainly killing old, unproductive people. I don't want to minimize the severity of the problem or the emotional pain of people who have lost loved ones, but in terms of long-term economic impact the corona virus is really not a problem.

ptyyy 7y ago

We're basically running out of tools to combat an actual financial crisis. https://www.investopedia.com/terms/l/liquiditytrap.asp https://www.investopedia.com/terms/l/liquiditytrap.asp

thedudeabides5 7y ago
Hey look on the bright side, we have another 100bps left in rates and then QE4. After that, yeah then it gets tough, but then again, maybe we get some actual fiscal stimulus which maybe buys the US some China style infrastructure!
- andreilys 7y ago
  We will likely see negative interest rates before the Fed decides to raise
- Symmetry 7y ago
  We could always just end the practice of paying interest on excess reserves which the Fed started when they thought banks were collapsing but there wasn't any economic downturn back in 2008, so they needed to get the banks not to lend out the money they were pumping into them somehow. The Fed's inflation models have been predicting higher inflation than we've seen ever since. Currently the interest on required reserves (IORR) and interested on excess reserves (IOER) are both 1.6%, well above the Fed lending rate of 1.25%.
- bluedevil2k 7y ago
  A fiscal stimulus? Yes, let's go even more into debt than we already are.
  - learc83 7y ago
    It doesn't matter how much debt we are in provided the rate of return for the investment is greater than the interest on the new debt. And that's without considering that inflation is very low, so we can print our way out of some of it.

pastor_elm 7y ago

>The Fed also said in the statement that the “fundamentals of the U.S. economy remain strong.” So why cut the rate? Doesn't make any sense.

Angostura 7y ago
Because you can have a fundamentally strong economy, but nonetheless having up to 1/5th of you workforce off simultaneously (UK govt worse case) could cause business difficulties?)
saber6 7y ago
Why does it not make sense? Interest rates are incentives. You want a balance between too hot (inflation) and too cool (deflation). Ideally with low single digit inflation to encourage investment rather than pure savings.
wonderwonder 7y ago
Because someone at the top with a limited grasp of economics but a great understanding of campaigning insisted on it.
- lonelappde 7y ago
  The Fed is independent of the Executive except at appointment time.
  - wonderwonder 7y ago
    Theoretically yes, but all except one are Trump appointees and the main thing he looks for is loyalty. In addition, the threat of getting publicly hammered and humiliated by the president is often enough to make someone think twice before not doing what he asks.
  - jjoonathan 7y ago
    Like the Judiciary is independent of the Executive and provides a check and balance to its power?

vnchr 7y ago

The Dow finished up 1,294 points yesterday, making it its best one-day point gain on record.

howlin 7y ago
It's best to follow the SP500 rather than the Dow. The former is much more representative of the whole market. And it's best to follow market movement in percentage rather than points. Points inflate over time as the nominal value of the market indexes climb.
- stevenwliao 7y ago
  I can't wait for the SP500 to replace the Dow in news reporting.
lonelappde 7y ago
"point gains" is a vanity metrics. Percentage matters
cat199 7y ago
and what's the 3 day / 5 day trend? giant gains are not so important after giant losses, this is just celebrating volatility.
govg 7y ago
The DJIA is not as good a metric compared to say, S&P500. It considers a 1$ move in any of the constituents in the same manner, so a stock worth 200$ moving up by 1$ is given the same importance in terms of points change in the index value as a stock worth 2$ moving up by 1$ (whereas fundamentally speaking, the second movement is far more interesting than the first).

wonderwonder 7y ago

We are burning all of our fuel to ensure we are running at record levels and when a real problem rears its head, we are going to be dry.

muttled 7y ago
The fallout will either fall on a second term or during someone else's first term. Either way the administration doesn't care.
- SN76477 7y ago
  Exactly this.
- katmannthree 7y ago
  November is still more than six months away. Given how quickly COVID-19 spreads I think our economy will likely be feeling the pain long before the election.
  - wonderwonder 7y ago
    You are not wrong, and I do think that on the individual level, company employees will feel it. Unemployment may go up. This administration though uses the stock market as their barometer so if they are able claim that the S&P and DJIA are up they can claim victory. There are a lot of things they can do to keep stocks artificially inflated such as more rate cuts, corp. tax cuts, removing regulations, reducing the capital banks are required to keep on hand, etc. All of these can work towards keeping stocks high for a limited time but do essentially nothing for the normal person. At that point then its just a race between when the election occurs and when the market no longer responds to the artificial scaffolding. I have no doubt this administration will hesitate for even a second if they are able to implement a feature that results in short term (through November) gains at the cost of long term ruin.
harryh 7y ago
This is not accurate. See: https://www.themoneyillusion.com/the-actual-ammunition-issue/ https://www.themoneyillusion.com/the-actual-ammunition-issue...

scarmig 7y ago

Keeping the party going by drinking rubbing alcohol. What would be hilarious/terrible is if this attempt to juice the markets doesn't prevent a sea of red at EOD.

rhexs 7y ago

This will further increase housing prices, no? How much more unobtainable for the average American could they possibly get? I suppose negative interest rates will let us know shortly!

thedance 7y ago
Don’t worry, literally every single one of the presidential candidates in the democratic primary wants to “build wealth” by making housing ever more expensive. It’s practically state policy to make it impossible for a first-time buyer.
- elicash 7y ago
  The entire point of housing policy at the local level, where it matters, is to make housing more expensive because people's wealth is in their homes and they're relying on housing prices to rise steadily. Renters have less political power.
  - thedance 7y ago
    Local policy is broken but I’m not convinced that it dominates. The Feds have the mortgage interest deduction and Fanny, which both stimulate the demand side very greatly.
    - elicash 7y ago
      Aren't significantly fewer (tens of millions?) people taking the mortgage interest deduction due to tax reform that doubled the standard deduction? Doesn't seem to have driven a collapse in housing costs. We need more density in low-density areas of cities. Allow people to have multi-family homes if they choose it.
- holtalanm 7y ago
  at the risk of getting into a political debate on the internet: I hadn't heard this. Do you have any sources backing up this claim?

hsnewman 7y ago

I'm retired and mostly not in the market. I won't invest in the market while it is overpriced. With such low interest rates, what is a safe investment?

airstrike 7y ago
Defensive, boring, high-dividend stocks?
sand_castles 7y ago
There is no interest without risk. I suggest Iranian, Argentinian bonds if you really want to get that blood flowing.
- xeromal 7y ago
  I wonder if syrian bonds are available?
lonelappde 7y ago
invest in a new innovation that cures or mitigates covid-19, or cash and take your lumps. Money is a shared delusion; you can't force it to grow or retain value. Enjoy the net win factoring in the last 10years.
fourstar 7y ago
BTC.
misja111 7y ago
If you believe the market is overpriced you could consider investing in long term put options.
companyhen 7y ago
BTC and ETH is worth a few % of your portfolio depending on your risk tolerance. :)
natex 7y ago
The business cycle has been on the down turn for a few months now (though folks are just now beginning to notice it). Historically, Treasuries, long-term GOV'T bonds, and gold perform well during this part of the cycle. If you must have equities, utilities and REITs perform well but only in relation to other S&P stocks.

airstrike 7y ago

From what I gather after spending more time than I'm willing to admit listening to every finance talking head out there, the consensus on the street seems to be that this will result in a temporary market recovery followed by the continued deterioration of stock prices given that fiscal or monetary* policy can't really affect the real economy in the near term* i.e. if the supply chain is indeed impacted due to COVID-19, no amount of fiscal or monetary* stimulus can make up for the time / productivity losses in the near term* On the margin, I'm still slightly bearish on the whole situation due to the combination of the virus' absurdly high infection rate[0] and its long incubation period (I'll let each one of you be the judge of how long that is...) [0] https://duckduckgo.com/?q=infection+rate+sars+vs+coronavirus&ia=images&iax=images https://duckduckgo.com/?q=infection+rate+sars+vs+coronavirus...

deleted 7y ago
[deleted]
ithinkinstereo 7y ago
> if the supply chain is indeed impacted Is there any question? 80% of the Chinese workforce has been sitting on the sidelines since mid-January. Production is just barely ramping up and I don't think we'll see full capacity until well into April, provided that COVID19 is truly contained/managed. Edit: not sure about the downvotes. Here's a source about Foxconn production: https://twitter.com/onlyyoontv/status/1234855310428430337 https://twitter.com/onlyyoontv/status/1234855310428430337
- airstrike 7y ago
  The question at the moment is whether the impact is prolonged enough to affect more than 1-2 quarters worth of business, and how quickly we can recover from this. Can Foxconn plants in China work double time to make enough iPhones for Fall / Winter sales? Your guess is as good as mine...
- yumraj 7y ago
  And, if they try to ramp up the production too quickly, will we see a return of Covid-19 due to people in close proximity again?

mech1234 7y ago

Interest rates have been on a secular decline over the course of the last century. Different economists have described this via various terms- "savings glut" is the one I like the most (even though I don't like Krugman). Right now there is so much saved cash out there looking to be lent out that any project looking for financing can find it for cheap. The Fed does not keep interest rates low in a vacuum. There is an auction system that determines real rates. If the Fed is not able to sell all their bonds at the target rate, they have to adjust. In the long run, I think we will see: 1. (at risk of calling this bull market a "new normal") P/E ratios for stock will continue to climb in a secular fashion. Low returns from the alternative investment of bonds will dictate high P/E ratios. 2. Debt financing will remain cheap. Low interest rates signal cash that is desperate to find a place to park it. 3. Government debt will remain popular and affordable. This is a win for Keynesians. 4. Secular low interest rates are an indicator of a stable and mature economy, which is good. The bad part is that they signal a world where obvious available capital investment projects are missing- we seem to have picked the low hanging fruit. 5. Next recession the U.S. will hit the zero lower bound, and we will see lots of QE and/or nominal negative interest rates through some institutional mechanism. 6. Increasing government deficits look better when interest rates are low. 7. Speculative: Deficit spending can increase indefinitely if real interest rates are below 0 (aka nominal rates are below inflation). To put it in other terms: Any deficit spending is free money up until the point that it causes inflation to rise about the nominal interest rate.

budlightvirus 7y ago
What does "secular" mean to you?
- ejstronge 7y ago
  'Secular' has multiple definitions; this one refers to a non-cyclical trend: https://www.lexico.com/en/definition/secular https://www.lexico.com/en/definition/secular
- mywittyname 7y ago
  From context, the OP is using it to mean, over a period of time.

ithinkinstereo 7y ago

Most of the risks to the economy posed by COVID19 are supply side. How is a rate cute going to help? It seems like the main consequence of this in the near term is an increase in inflation.

flyGuyOnTheSly 7y ago

Does this mean the meeting on march 18th (where there was almost a 100% chance of a rate cut going through) is not happening anymore? [0] I can't tell if they've just not yet updated that page. [0] https://www.cmegroup.com/trading/interest-rates/countdown-to-fomc.html https://www.cmegroup.com/trading/interest-rates/countdown-to...

Donald 7y ago
The market is pricing in an additional rate cut at that meeting

aazaa 7y ago

For those saying the Fed is running out of ammunition, study what the Bank of Japan has done. It owns close to 80% of the Japanese ETF market currently, with no end to the expansion of balance sheet in sight. After buying long treasuries, it's not unreasonable to imagine the Fed buying stocks, either individual issues or ETFs. The President would be for it, and it would be hard to drum up any opposition to it in congress. Not only that, but rates on long treasuries have stayed negative for long periods of time in other countries. It's an open question how negative long treasuries can go, but the evidence suggests we're not even close to the limit. Recessions are politically unacceptable in today's world. Buy stocks. Buy treasuries. Do so with wild abandon, because the Fed has your back. Just watch out for the moment when the whole thing jumps into reverse and no amount of market manipulation will stop the bleeding.

deleted 7y ago
[deleted]
rbinv 7y ago
What would be the endgame here?
- scarmig 7y ago
  A long-lived Nikkei-style "bull run."
- aazaa 7y ago
  I suspect it will nurture a massive structural problem few today would understand or care much about. It will be allowed to grow unabated because, frankly, there will be bigger fish to fry. Maybe a little like subprime leading up to 2008. The problem was written off by just about everyone who bothered to look, until something snapped and it was the only thing that mattered. We may be seeing the start of this in the repo market, which once again had a convulsion today. I doubt many care about it or really understand it, and that goes double for policy makers.
- mullingitover 7y ago
  What's the term for when the government owns all the industries?

deleted 7y ago

[deleted]

_marlowe_ 7y ago

This is a supply shock. Cutting interest rates won't make widgets appear if the widget factory is idle...

_marlowe_ 7y ago
I'm not sure why I was downvoted. https://www.marketplace.org/2020/02/18/coronavirus-warnings-from-apple-nintendo-and-nissan-kindle-supply-shock-fears/ https://www.marketplace.org/2020/02/18/coronavirus-warnings-...
- rolltiide 7y ago
  everyone is equally as confused as its the same user experience for everyone that comments but protip, talking about downvotes just opens a spiral of more downvotes until you criticize the site rules and get shadowbanned. taking one for the team!

eanzenberg 7y ago

In these comments: hopeful wishing of the demise of the US economy.

throwaway5752 7y ago

This is not solving the problem which is 1) the US is drastically behind in testing the population 2) it will not fix disrupted international supply chains 3) it will not fix liquidity crises at health insurers, hospitals, and life insurers and 4) it will not fix demand if people do not want to go shopping at any price because of non-financial concerns. I presume the Fed knows this, and what worse is this seems to be due to political pressure. Finally, when this does not work, it will reduce peoples' faith in the Fed.

scarmig 7y ago
Hey now! SPY is up 0.01% at the news!
snarf21 7y ago
People have faith in the Fed? You are right though, this is political to slow a market correction to where it actually should be. We just keep spinning more plates. What we really need if fiscal policy plans, not monetary. We have so many zombie companies that are on life support and we need to let them die but it won't happen with 0% rates.
- seganddr 7y ago
  The US federal reserve are the best in the world at what they do IMO.
ajross 7y ago
It won't fix any of those, but it will smooth the impact of 1, 2, and 4 over a longer period, which has value. And it absolutely does treat 3 directly, though obviously there is a balance sheet problem with insurers (not the same thing as a liquidity problem!) that will need to be treated by some kind of a bailout eventually. People are being too rigid here: this isn't a perfect policy but it's not an inherently bad idea. You use monentary policy to buffer shocks to the economy, and in that regime it's best used early and with agility. I think the Fed is fine here, though I agree that this is a very minor side plot in a much larger story.

ck2 7y ago

So every safety in our country and economy is now disabled, air and water regulations food regulations,taxes cut to flatline levels for industry, all in the name of profit. Now the monetary system is being tampered with further. All reserves are gone. Imagine trying to climb out of this ditch if something really bad happened (like say a million people die).

ngngngng 7y ago

So should I wait a week and then refinance my houses?

JMTQp8lwXL 7y ago
The effects to the mortgage market aren't immediate, but should follow on soon. I'd keep an eye on current rates and observe the fall before signing any paperwork.

tlb 7y ago

It's well-understand how low interest rates boost the economy in the medium- and long-term. Companies deploy cheap capital to build new factories, and consumers buy more appliances, cars, and houses. What short term behavior changes do emergency rate cuts cause to boost the economy? Are there capital projects that can get started in weeks, that were previously shelved because the rates were 0.5% too high, but are now viable? What sort of projects would these be?

shdh 7y ago
> Companies deploy cheap capital to build new factories Have we actually seen investment though? Or have we seen mostly stock buybacks?

yumraj 7y ago

China started with single digit cases, which then spread countrywide with tens of thousands of cases and many deaths. They quarantined cities, built 1000 bed hospitals in 10 days. And now after about 2 months they are seeing a slowdown. Why would this exact scenario regarding growth in the number of cases not play out in the US? The only difference is smaller population, but cities are dense here too. However, unlike China, I don't think US and other countries will be able to quarantine entire cities. They only hope IMHO is that the virus becomes less virulent with as summer approaches.

unreal37 7y ago
Apparently China will have a massive economic cost to this. "New data on China that has trickled in over the last few days suggests the damage coronavirus has wrought on the world’s second-largest economy could be worse and more prolonged than previously expected, despite a decline this week in the number of new infections in the country." [0] https://business.financialpost.com/news/economy/five-signs-the-coronavirus-hit-on-the-chinese-economy-is-worse-than-expected https://business.financialpost.com/news/economy/five-signs-t...
- AnimalMuppet 7y ago
  The cost of doing nothing may have been far higher, though.
cprayingmantis 7y ago
I think the thing that no one is looking at here is that nursing homes and elderly care centers are going to be hot beds for the the virus. From my understanding China and most of these Asian countries is that don't have nursing homes so the house can be isolated. Here in the US we concentrate the elderly in these nursing homes and hope for the best. Most CNAs don't have enough vacation or sick time to miss work so they will continue to come to work if they're feeling a little bad or have a slight fever and they will spread it despite everyone's vigilance.
- tartoran 7y ago

vanniv 7y ago

This seems like a bad move. It isn't going to help, because it doesn't address the actual cause at all -- but it will help heighten the panic

coliveira 7y ago

This is a big mistake. There is nothing the Fed can do revive the economy from the Corona virus, because this is not a demand problem, it is a supply problem. The economy WILL slow down because the major parts of the economic chain have been considerably affected by this virus. You cannot use more money when there is less to buy and sell. This will happen simply because whatever solution to the virus disruption will take time to be implemented.

MrPowers 7y ago
I am always surprised when software engineers have such strong opinions on monetary policy. Black and white statements like "There is nothing the Fed can do revive the economy from the Corona virus" aren't the best for macroeconomics discussions that rely on imperfect information and multiple related variables. Your wording makes it sound like you know more about macro than the best minds in monetary policy.
- JMTQp8lwXL 7y ago
  It's more than Software Engineers that perform armchair economic analysis. I wouldn't single them out. Anybody who's well-to-do and participates in markets has a direct interest in paying attention to the Fed and markets. Anybody in top 10% likely has good reason to pay attention.
- Der_Einzige 7y ago
  Software engineers are uniquely qualified to analyze supply chains and supply chain problems. In this case, technical analysis looks a whole lot different than the chicken bone divination stuff you see with thinkorswim or other trading platforms...
  - Erlich_Bachman 7y ago
    > Software engineers are uniquely qualified to analyze supply chains and supply chain problems. Care to substantiate it? Why? At the very least businesspeople should be more qualified because that's what they deal with? Just because software engineers have to think for a living and do some math sometimes doesn't mean they are experts in every field where that is used...

ajphdiv 7y ago

I had some call options on Robinhood that I wanted to sell after the spike caused by this rate hike. Now I'm watching my gains slowly go away since Robinhood is down again. Two days in a row.

rolltiide 7y ago
and what lesson have you learned?
- InterestBazinga 7y ago
  Trust an exchange with a Fancy UI.

chvid 7y ago

I like how you guys are pouring free money into the financial system while still asking $3000 if an uninsured person needs to be tested.

OscarCunningham 7y ago
This isn't free money.

interlocutor 7y ago

This abrupt move by the Fed betrays lack of knowledge of stock market psychology. Looking at how stocks are doing today you would not think that anything of interest has happened (no pun intended). The stock market psychology works on "buy on rumor, sell on news" principle. This is the reason there was a significant rally yesterday, and stocks are in negative territory today. What the Fed should have done is give signals that they are about to cut interest rates, then give stronger signals, then even stronger signals, then cut interest rate by 0.25% then repeat for the next 0.25%. Markets would have rallied multiple times for each good news signal.

news_hacker 7y ago
This is assuming that the fundamental trust in the market is still there though the global pandemic. It's hard to heal a deeper pessimism when it settles in, and the coronavirus has caused this, especially in the elderly. I think the Fed understands stock market psychology pretty well. I think they just didn't have a choice here.
spectramax 7y ago
> "buy on rumor, sell on news" Let me stop you right there - stock market is a multi-agent system with autonomous algorithms making micro decisions, cap managers doing strategic decisions, and everything in the middle. Add a bit of chaos theory. "Buy on rumor, sell on news" is an extremely simplified and naive rational for explaining how a stock market works. Most theories of how a stock market works have a built-in fallacy. If someone figured out how the stock market fluctuates, it would be ironed out by massive hedges.
- interlocutor 7y ago
  There may not be one, precise and predictable way the stock market works, but buying on rumor, and selling on news is a very common, herd mentality that is easily observable, as seen yesterday (rumor) and today (news).

76543210 7y ago

I'm looking to refinance. If my lender says the rate hasn't changed from 3.25% since last week, that's bullshit Right? How long should I wait for the rates to move?

throwaway3157 7y ago
It looks like the rates actually went slightly up from a few days ago (though these depends on many variables, but I'm comparing to my local rate that I've been checking for weeks). Might change tomorrow based on today's news.
- rubidium 7y ago
  How do you check your local rate?
  - throwaway3157 7y ago
    I use a website from a local private lender. It requires info about the kind of mortgage you want, the value of the property, your credit score, the zip code, etc. If you don't know where to look, you can start with Zillow's tool: https://www.zillow.com/mortgage-rates/ https://www.zillow.com/mortgage-rates/
Spellman 7y ago
Rates are pretty quick on responding. Here's where they stand today based on a survey of lenders, down to about 3.13%: http://www.mortgagenewsdaily.com/mortgage_rates/ http://www.mortgagenewsdaily.com/mortgage_rates/
harryh 7y ago
Mortgage rates do not move in lockstep with the fed overnight rate.

yters 7y ago

What if the reaction to the coronavirus is worse than the virus itself?

b1ur 7y ago
I agree to an extent. From a utilitarian standpoint, the economic damage caused by the virus is not outweighed by a mortality rate of 0.2%. That being said, coronavirus has the potential to become worse (more infections -> more mutation -> potential to mutate more aggressively or more resistant to our research) so minimizing infections is probably a good idea. Not to mention, people tend to get angry when you start assigning objective tangible value to human life.

cft 7y ago

I am wondering: what if this happened when the interest rates were zero?

auiya 7y ago

Imagine facing a global pandemic, and your first concern is how to profit from it.

zcase 7y ago

50 bps cut, initial rally, faded super fast and now down for the day. Would be interested to see if Fed cuts further. The first order effects weren't so large to stem the selloff (first order meaning the PV effect of lowering discount rate). As for second order effects (rate cuts to spur economic activity), I'm not even bullish about the mechanism to transmit rate cuts to the real economy normally, but I think in a quarantine situation, those mechanisms are even more diminished as there's less economic activity. Thinking out loud, demand will probably just hit a wall--there's no elasticity here when people are worried about their lives. The only mechanism that sounds plausible to flow through to the real economy is fiscal. Government buys Pampers, burns them, buys them again. Or keep lowering rates to raise asset prices by a purely mechanical lowering of discount factor.

pearjuice 7y ago

I don't want to sound overly negative but at least hedging with puts (and not gambling but sane expiry dates) against index funds isn't a bad idea. Cutting rates by a half point is panic football and won't fix the supply chain hiccups which will affect production and therefore consumption.

woeirua 7y ago

This is the start of the next Global Financial Crisis folks. It's not hard to see the pieces in motion now: 1 - The Q1 supply shock is going to be a temporary thing. They'll recover alright after causing some companies to miss their Q1 earnings. If this was the only effect, we would recover just fine here later this year, but... 2 - Coronavirus is just getting started in the US and Europe. If it spreads widely, and unabated, then the those countries will be forced to enact school closures, business closures, etc, which will cause a massive demand shock. 3 - Demand shock will tank airlines, cruises, restaurants, malls, etc. Basically anything that requires groups of people to make money. 4 - Eventually, demand shock will hit corporate balance sheets in a big way. Many corporations (especially in the energy industry) are overloaded with debt [1]. If this goes on long enough, then those companies will go bankrupt. 5 - If enough companies default on their debt simultaneously, then derivatives on corporate debt (defaults) will cause a systemic crisis again [2]. There's no guarantee that this will happen, but if it does it's going to make 2008 look like a joke by comparison. If it does, we need to do the right thing this time: wind down the banks and let them fail. For the downvoters: [1] https://www.nytimes.com/2018/09/01/opinion/the-next-financial-crisis-lurks-underground.html https://www.nytimes.com/2018/09/01/opinion/the-next-financia... [2] https://www.wsj.com/articles/in-a-blast-from-a-financial-crisis-past-synthetic-cdos-are-back-1503912601 https://www.wsj.com/articles/in-a-blast-from-a-financial-cri...

seganddr 7y ago
Please don't spread FUD. Please do provide references for your claims.
- woeirua 7y ago
  This isn't FUD: https://www.wsj.com/articles/in-a-blast-from-a-financial-crisis-past-synthetic-cdos-are-back-1503912601 https://www.wsj.com/articles/in-a-blast-from-a-financial-cri...
HenryKissinger 7y ago
At some point between steps 4 and 5, shouldn't the government say, "maybe y'all shouldn't have leveraged yourselves so much; debt is inherently bad, and we won't bail you out this time; figure this out; and don't rack up so much debt next time"? This addiction to debt has got to stop, and unfortunately it sometimes takes cold, hard pain for some to learn a lesson.

freepor 7y ago

I wonder if economic indicators will temporary blip up because of stockpiling. I recently bought $1000 of food and supplies and books and toys for my kids if they get stuck indoors which would have normally taken me six months to buy.

tasty_freeze 7y ago

Pardon my cynicism, but it seems like many of the actions the administration is pushing are simply things they were pushing already and are using this health crisis as cudgel to help get what they want. What we need are lower interest rates! What we need is to limit immigration from Mexico (even though the US has a higher infection rate and there isn't any talk of limiting flights from, say, England). What we need to do is silence domain experts and have communications controlled by politicians at the White House. Maybe this rate cut is actually the right thing to do, what do I know? But I have little reason to believe it was made for the right reasons.

dageshi 7y ago
The administration doesn't direct interest rate policy, the FED does, within the context of the FED's mandate a rate drop isn't unexpected during an event like this.
- SkyPuncher 7y ago
  > The administration doesn't direct interest rate policy, the FED does, Given that the administration choose exactly who leads the FED, they're not exactly independent either.
- cmer 7y ago
  To be fair, Trump has been pushing the Fed around non-stop. They basically follow his indirect orders. All for political gain at the expense of the future. It's pretty pathetic.
- tasty_freeze 7y ago
  That is how it is supposed to work. Over the past couple of years we have seen the President break with tradition and uses his megaphone to berate and belittle the fed to try and get what he wants. Of course we cannot know if the fed has ignored all that, but by appearances, the president seems to be having an influence.
tachyonbeam 7y ago
Agreed, I think many people in the administration and at the Fed were itching to cut rates for a while, and this is the perfect excuse to do what they were already planning to do.

neonate 7y ago

https://archive.md/MusGO https://archive.md/MusGO