One day later, the Fed announced emergency measures, bringing the fed funds rates down to 0-0.25% They could have waited until the next FOMC meeting, which is all of two days away. Traditionally,...
One day later, the Fed announced emergency measures, bringing the fed funds rates down to 0-0.25%
They could have waited until the next FOMC meeting, which is all of two days away.
Traditionally, the Fed is independent of the president, because obviously every president wants low rates in election year, but bad things happen if you let presidents dictate rates.
US President Donald Trump said the emergency action "makes me very happy".
It's not making the stock market very happy, looks like the futures market already hit the after hours 5% breaker
Although it certainly doesn't help, it's not clear that Trump's blather actually had much to do with current market conditions or with the timing of the Fed's announcement. Their last announcement...
Although it certainly doesn't help, it's not clear that Trump's blather actually had much to do with current market conditions or with the timing of the Fed's announcement. Their last announcement was between meetings too.
To me the drop in interest rates seems timely. Bad news built up over the weekend. The Fed was widely expected to drop the interest rate to 0 and it was already built-in to some prices. Why wait?
It is indeed QE4. But what else is left? There is not much else the Fed can do. Why go all in now and save nothing for later? I think Trump did indeed influence the Fed.
It is indeed QE4. But what else is left? There is not much else the Fed can do.
Why go all in now and save nothing for later? I think Trump did indeed influence the Fed.
Yeah, honestly, a "helicopter drop" (giving out free money to everyone) would be a really good idea, but that's up to Congress. Of course I would say that as a supporter of basic income, but in...
Yeah, honestly, a "helicopter drop" (giving out free money to everyone) would be a really good idea, but that's up to Congress.
Of course I would say that as a supporter of basic income, but in times like this more conservative economists will recommend it too, as a temporary measure. Here's one example.
We are likely in a recession. There is a supply shock, as our manufacturing source (China) effectively shut down. There is also a demand shock, as consumers are staying home. Normally the fed...
We are likely in a recession. There is a supply shock, as our manufacturing source (China) effectively shut down. There is also a demand shock, as consumers are staying home.
Normally the fed lowers rates during a recession, and the recession gets fixed.
Normally however, the Fed is the cause of the recession. The Fed typically raises rates to fight inflation. So if raising rates causes the recession, lowering rates typically fixes the recession.
This case is different. The fed is hoping zero rates lower the severity of the recession, but they have been saying for a while now that the government will need to step in with fiscal stimulus during the next recession. Japan has been at negative rates for a while now, and their economy has gone nowhere.
The last eight or so. Inflation heads above 2%, the Fed has to increase rates. The fed increases rates too much, you get yourself a recession. You can see it play out here:...
The last eight or so. Inflation heads above 2%, the Fed has to increase rates. The fed increases rates too much, you get yourself a recession.
That's sort of a given because if the Fed saw a recession coming they would lower rates and they didn't, but I think all that proves is they can't predict the future and there are often surprises....
That's sort of a given because if the Fed saw a recession coming they would lower rates and they didn't, but I think all that proves is they can't predict the future and there are often surprises.
There is one exception: for the 1982 recession, Volcker did it deliberately to kill inflation dead.
I am not a financial expert and don't really know. But I was thinking that normally, the stock market goes up when rates are cut. So, maybe some good news to offset a lot of bad news and keep the...
I am not a financial expert and don't really know. But I was thinking that normally, the stock market goes up when rates are cut. So, maybe some good news to offset a lot of bad news and keep the stock market from falling too much?
I don't know how much else you know so I'll try to explain the basics:
Timing aside, an interest rate cut is about making it easier to borrow money and refinance loans. It takes some of the pressure off for businesses that have debt with variable interest rates. (And consumers too if they have debt with a variable interest rate.)
There are a lot of projects where a business borrows money to build something and it takes a while before they see any profit. (Like, for example, a real estate developer.) If loans are expensive, any delay costs a lot of money. And with coronavirus and a recession, there are likely to be unexpected delays in half-finished projects. These delays are less costly if you borrow at a lower rate.
There are also other reasons why a delayed project costs more, and without money coming in, companies have to borrow.
Well, hopefully both. The government can do more than one thing, and the Fed's job is to worry about the economy. There are some businesses that are basically sound under normal conditions and...
Well, hopefully both. The government can do more than one thing, and the Fed's job is to worry about the economy.
There are some businesses that are basically sound under normal conditions and they should recover after this is over, if they get more time, and a low-interest loan buys you time. There others that wouldn't make it anyway.
At this point we don't really know the difference. But even if we did, do you really want more people to get laid off now? The time to think about deflating a bubble is not in the beginning stages of a crisis.
Okay, but I'm not buying your argument, partially because your supporting facts don't seem to be true. There are signs of a credit crunch. I will start a new topic with one article.
Okay, but I'm not buying your argument, partially because your supporting facts don't seem to be true. There are signs of a credit crunch. I will start a new topic with one article.
Hey, I don't actually disagree with much of that. Let's not make this disagreement seem bigger than it is? I do know about liquidity traps. (Consider Japan.) I don't think interest rate cuts are a...
Hey, I don't actually disagree with much of that. Let's not make this disagreement seem bigger than it is?
I do know about liquidity traps. (Consider Japan.) I don't think interest rate cuts are a panacea. (Quantitative easing is itself an alternative, and I don't think that's a panacea either.)
My position, or really, assumption, is that an interest rate cut might not be very effective, but probably doesn't hurt, particularly in a crisis. You seem to think it's counterproductive and I disagree with that part, so I'm curious about how you think that part works.
One day later, the Fed announced emergency measures, bringing the fed funds rates down to 0-0.25%
They could have waited until the next FOMC meeting, which is all of two days away.
Traditionally, the Fed is independent of the president, because obviously every president wants low rates in election year, but bad things happen if you let presidents dictate rates.
It's not making the stock market very happy, looks like the futures market already hit the after hours 5% breaker
Although it certainly doesn't help, it's not clear that Trump's blather actually had much to do with current market conditions or with the timing of the Fed's announcement. Their last announcement was between meetings too.
To me the drop in interest rates seems timely. Bad news built up over the weekend. The Fed was widely expected to drop the interest rate to 0 and it was already built-in to some prices. Why wait?
Why go to zero?
Why not another 50 basis point drop?
They have used up all their bullets. What's next?
Looks like quantitative easing, like before. Basically, buy what other people are selling. Already starting.
It is indeed QE4. But what else is left? There is not much else the Fed can do.
Why go all in now and save nothing for later? I think Trump did indeed influence the Fed.
Yeah, honestly, a "helicopter drop" (giving out free money to everyone) would be a really good idea, but that's up to Congress.
Of course I would say that as a supporter of basic income, but in times like this more conservative economists will recommend it too, as a temporary measure. Here's one example.
We are likely in a recession. There is a supply shock, as our manufacturing source (China) effectively shut down. There is also a demand shock, as consumers are staying home.
Normally the fed lowers rates during a recession, and the recession gets fixed.
Normally however, the Fed is the cause of the recession. The Fed typically raises rates to fight inflation. So if raising rates causes the recession, lowering rates typically fixes the recession.
This case is different. The fed is hoping zero rates lower the severity of the recession, but they have been saying for a while now that the government will need to step in with fiscal stimulus during the next recession. Japan has been at negative rates for a while now, and their economy has gone nowhere.
The last eight or so. Inflation heads above 2%, the Fed has to increase rates. The fed increases rates too much, you get yourself a recession.
You can see it play out here: https://fred.stlouisfed.org/series/FEDFUNDS
The line is the fed funds rate. Shaded areas are the recessions.
That's sort of a given because if the Fed saw a recession coming they would lower rates and they didn't, but I think all that proves is they can't predict the future and there are often surprises.
There is one exception: for the 1982 recession, Volcker did it deliberately to kill inflation dead.
Ahhh, sounds like I should be the one asking you questions.
I am not a financial expert and don't really know. But I was thinking that normally, the stock market goes up when rates are cut. So, maybe some good news to offset a lot of bad news and keep the stock market from falling too much?
I don't know how much else you know so I'll try to explain the basics:
Timing aside, an interest rate cut is about making it easier to borrow money and refinance loans. It takes some of the pressure off for businesses that have debt with variable interest rates. (And consumers too if they have debt with a variable interest rate.)
There are a lot of projects where a business borrows money to build something and it takes a while before they see any profit. (Like, for example, a real estate developer.) If loans are expensive, any delay costs a lot of money. And with coronavirus and a recession, there are likely to be unexpected delays in half-finished projects. These delays are less costly if you borrow at a lower rate.
There are also other reasons why a delayed project costs more, and without money coming in, companies have to borrow.
Well, hopefully both. The government can do more than one thing, and the Fed's job is to worry about the economy.
There are some businesses that are basically sound under normal conditions and they should recover after this is over, if they get more time, and a low-interest loan buys you time. There others that wouldn't make it anyway.
At this point we don't really know the difference. But even if we did, do you really want more people to get laid off now? The time to think about deflating a bubble is not in the beginning stages of a crisis.
There will certainly be a recession, and the Fed's effectiveness does vary. But it could also be worse if the Fed didn't act.
Okay, but I'm not buying your argument, partially because your supporting facts don't seem to be true. There are signs of a credit crunch. I will start a new topic with one article.
Hey, I don't actually disagree with much of that. Let's not make this disagreement seem bigger than it is?
I do know about liquidity traps. (Consider Japan.) I don't think interest rate cuts are a panacea. (Quantitative easing is itself an alternative, and I don't think that's a panacea either.)
My position, or really, assumption, is that an interest rate cut might not be very effective, but probably doesn't hurt, particularly in a crisis. You seem to think it's counterproductive and I disagree with that part, so I'm curious about how you think that part works.