With the stock market in freefall, events and restaurants closing all across the United States, and a truly grim financial picture looming just over the horizon, the Federal Reserve announced Sunday that it is cutting interest rates to zero and purchasing more than $700 billion in government bonds in a last-ditch effort to stop the bleeding.
The move is the most drastic rate cut we’ve seen from the central bank since the 2008 financial crisis, and it is (hopefully) going to keep the economy on somewhat steady footing even as panic and uncertainty grips the nation.
The rate cut is intended to give Americans the lowest possible borrowing costs at a time when people may be feeling the pinch of a sudden slowdown. With businesses on forced closure in many major U.S. cities and states, a recession could be all but inevitable. The Fed’s quantitative easing plan – buying up all of those bonds – is intended to keep the markets flowing and keep rates low. The central bank also announced that they would make generous loans available to banks across the country so that their customers can get more favorable terms at a time of need.
“Economic policy experts must do what we can to ease hardship caused by the disruption to the economy,” said Fed Chairman Jerome Powell. “We are prepared to use our full range of tools to support the flow of credit to households and businesses.”
In a collective statement on Sunday, a few of America’s largest banks announced that they would put a halt to the repurchase of their own shares in order to free up money for customer loans. Bank of America, Wells Fargo, and Citigroup were among the banks taking part in the announcement.
“The covid-19 pandemic is an unprecedented challenge for the world and the global economy and the largest U.S. banks have an unquestioned ability and commitment to supporting our customers, clients and the nation,” the banks said.
The rate cut did not keep the stock market from plunging once again on Monday morning. Within minutes of opening, the Dow Jones Industrial Average plummeted 10% and the S&P 500 lost 8%. This triggered the third fail-safe halt in trading we’ve seen over the past week.
“The stock market continues to try and price in how much of a drop in consumer spending and economic activity we are likely to see and for how long that will last,” said Independent Advisor Alliance’s Chris Zaccarelli on Monday. “In the absence of more clarity, the market’s natural direction will be down.”
It is unfortunately looking more and more obvious that we are in for some troubled waters ahead.
Anyone got any shares in Charmin?