Category: Economy

The Fed’s move to cut interest rates to soften the economic blow…

from the Coronavirus was a Panic Move, Which is Why the Market’s Positive Reaction was Short-lived

SOURCE: Business Insider |
Neil Dutta, Opinion Contributor Mar 3, 2020, 3:31 PM

Markets are said to stop panicking when policymakers begin to panic. The Federal Reserve’s decision to deliver a 0.5 percentage point emergency rate cut as the spread of coronavirus worsens qualifies as a panic move. 

The Federal Reserve cannot permanently inflate the level of asset prices in the face of an economic disruption like the coronavirus, but they can provide a short-term floor under sentiment.

As many investors began to suspect that the Fed would cut rates in response to the potential disruption, there was not much room for Chairman Powell to surprise to the upside and there was plenty of room for the Fed to fall short of market’s expectations for easing. By announcing a large rate cut outside of the normal meeting schedule, the Fed was able to provide a modest element of surprise. >Read More