Fed Cuts Interest Rates to Zero
Over the past ten years, it’s been exceptionally easy for stocks to keep going up. Their asset class in opposition, fixed income bonds, have offered hardly any challenge. That’s because interest rates have been very low, and we can thank central banks for that!
We all love to see our stock portfolios growing, but some have criticized the low rates. The “easy money” tempts some investors to buy blindly, to ignore what ownership in a real business is actually worth, and to simply trade the paper.
This is how bubbles are created, and should any burst, these low rates further mean that the Federal Reserve is without ammunition to fight the fear, and stimulate bulls back into action.
The massive, nuclear news report that absolutely floored investors yesterday and has changed the outlook for stock markets the world over is that with the coronavirus crisis escalating, the Federal Reserve has shot its last bullet!
The Fed Funds rate has dropped from around one percent to near zero, within an inch of negative territory. That matters because if markets don’t respond with jubilation at the opening bell, it’s likely to be desolation instead.
For the record, US stock futures have tumbled so far in pre-market trading that they’ve again hit loss-stopping circuit breakers. Erik Nielson, the chief economist at Unicredit, said in the early hours of this morning, “what a rollercoaster this is turning out to be! I never thought I would see such volatility in highly developed markets.” Well, now you have! There’s more volatility on the way, so hold on to your seats!