The Fed’s Coronavirus Cure
“When the global economy goes south,” says market watcher Tony Farren, “the Fed steps in!” The world expects Chairman Jerome Powell to stimulate business the moment stock prices start tipping backwards, making loans cheaper and essentially opening a big monetary parachute so that investors don’t have to fear their portfolios going splat!
However, only last Thursday, JayPow went before Congress to say rates were already too low to lower. Without a bigger parachute courtesy of government tax cuts, we’d be trying to slow up to a 29,398 ft free-fall using the drag of a large paper bag!
For this reason, the Federal Reserve has been on a quiet mission to raise interest rates. However, Trump’s trade waring, and now a quarantined world economy, risk undoing its progress.
Festering in the alleys of a Chinese food market in December, it’s probably unlucky that Covid-2019’s first victims spread their symptoms before visiting local doctors. Alas, they kicked off a chain of unofficial cases, and the coronavirus now looks like it could do serious harm to around 1% of everything.
The fear of what’s next for the second-largest economy on Earth has led President Xi to order aggressive stimulus in his country. The third-largest economy on Earth (Japan) just contracted a whopping 6.3% before the virus impact, and the fourth-largest economy on Earth (Germany) printed gross domestic product (GDP) growth of only 0.4% last quarter.
The hot money is flowing into the only “safe haven” it knows it can, disruptors in ‘Murica!
As US growth stocks hit all-time highs, traders around the world are darting for the Fed Funds futures market to place bets on rates falling, not rising. To make things even more interesting, there’s a flux of gold buying and US treasury bond-buying as well.
It’s frantic out there, but that’s the state of play. It sure sucks how not all market variables are precise and controllable!
