Fed Slashes Rates to Fight Coronavirus Slowdown WSJ 3/15/20

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JAZZISCOOL
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Fed Slashes Rates to Fight Coronavirus Slowdown WSJ 3/15/20

Post by JAZZISCOOL » Sun Mar 15, 2020 4:04 pm

Fed Slashes Rates to Fight Coronavirus Slowdown

Bank will purchase $500 billion in Treasury securities, $200 billion in mortgage-backed securities.

"WASHINGTON—The Federal Reserve slashed its benchmark interest rate to near zero on Sunday and said it would buy $700 billion in Treasury and mortgage-backed securities in an aggressive bid to prevent market disruptions from aggravating what is likely to be a severe slowdown from the coronavirus pandemic.

“The coronavirus outbreak has harmed communities and disrupted economic activity in many countries, including the United States,” the Fed’s rate-setting committee said in a statement Sunday. “The Federal Reserve is prepared to use its full range of tools to support the flow of credit to households and businesses.”

"Fed Chairman Jerome Powell is set to hold a news conference at 6 p.m."

Breaking story - see WSJ.

Paywall unless you have a subscription.

Edit:

"The Fed said it was activating swap lines with five other central banks, including the European Central Bank and the Bank of England, to smooth out disruptions in overseas dollar-funding markets, effectively encouraging foreign central banks to use existing facilities to supply dollars to their own financial systems."

"The central bank also announced a series of steps to boost lending, including by lowering the rate charged to banks for short-term emergency loans from its discount window to 0.25% from 1.75%."
Last edited by JAZZISCOOL on Sun Mar 15, 2020 4:15 pm, edited 2 times in total.

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Re: Fed Slashes Rates to Fight Coronavirus Slowdown WSJ 3/15/20

Post by MotoTrojan » Sun Mar 15, 2020 4:05 pm

https://www.ig.com/en/indices/markets-i ... all-street

Minor bump up in the admittedly weak over-weekend metric shown above, but still showing a decline for tomorrow. Will be interesting to see how the futures open.

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Re: Fed Slashes Rates to Fight Coronavirus Slowdown WSJ 3/15/20

Post by theorist » Sun Mar 15, 2020 4:05 pm

With rates at zero now, I wonder what tools they have remaining if this doesn’t suffice?


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Federal Reserve just cuts rates to zero. Do you think the worst is over?

Post by LookinAround » Sun Mar 15, 2020 4:06 pm

Federal Reserve cuts rates to zero and launches massive $700 billion quantitative easing program

https://www.cnbc.com/2020/03/15/federal ... ogram.html

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Re: Fed Slashes Rates to Fight Coronavirus Slowdown WSJ 3/15/20

Post by Rick Ferri » Sun Mar 15, 2020 4:06 pm

Federal Reserve slashes interest rates to zero as part of wide-ranging emergency intervention

We'll see what happens to the yield curve now. A negative yield curve means negative interest rates.

Rick
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Re: Fed Slashes Rates to Fight Coronavirus Slowdown WSJ 3/15/20

Post by onourway » Sun Mar 15, 2020 4:07 pm

Looks like we're about to find out what happens when we go into a recession and the Fed finds itself with all chambers empty.

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Re: Fed Slashes Rates to Fight Coronavirus Slowdown WSJ 3/15/20

Post by Rick Ferri » Sun Mar 15, 2020 4:09 pm

Unusual for Fed action on a Sunday. They wanted to get it done before Pacific markets open this evening. Must be seeing something.

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Re: Fed Slashes Rates to Fight Coronavirus Slowdown WSJ 3/15/20

Post by Seasonal » Sun Mar 15, 2020 4:09 pm

onourway wrote:
Sun Mar 15, 2020 4:07 pm
Looks like we're about to find out what happens when we go into a recession and the Fed finds itself with all chambers empty.
They can always do QE and other actions besides cutting interest rates.

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Re: Federal Reserve cuts rates to zero. Do you think the worst is over?

Post by fwellimort » Sun Mar 15, 2020 4:10 pm

I think the 'worst' hasn't even started. Who knows how the markets will react once people get unemployed for months.
Will markets react as if it's dooms day or as 'oh, this will be fixed in a few months or a year so it's not worth selling too much'.

Maybe the FED will freeze interest rates for corporate bonds and inject its own money in in the meantime and credit rating firms will delay ratings.
I mean the govt literally froze all student loans to 0%. I didn't even expect such fast reaction from the govt in that matter.

Maybe the FED will just print so much money that markets just won't fall much. Maybe even do temporary UBI to unemployed/under-employed workers.

Maybe Saudi decides to not participate in oil war. Maybe US decides to put massive tariffs on oil.
Maybe US forces a lock down and the market notices the spread is not as fast as expected.
Maybe US just stops puts and/or the market stops temporarily.

Who on earth knows.
I'm on the former part of "it's dooms day". I can't imagine how markets won't fall more than 20% when we have oil war + potential months of unemployment/underemployment (especially locals like restaurant) + corporate bond issues and companies on verge of bankruptcy.
That said, I'm not confident enough to do puts. So there's that as I haven't really read any research papers of puts during in recessions. Who knows.

Also, historically, investors lost to the market cause of personal bias + taxes + high trading costs. Do the same research hold up against the minority of investors who are doing puts and don't have to worry about taxes + have zero trading costs in times of turmoil? Who knows.

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Re: Fed Slashes Rates to Fight Coronavirus Slowdown WSJ 3/15/20

Post by CodeMaster » Sun Mar 15, 2020 4:10 pm

May I ask what this means when rates are slashed? What does it generally affect? Sorry for my noob question... :beer

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Re: Fed Slashes Rates to Fight Coronavirus Slowdown WSJ 3/15/20

Post by Seasonal » Sun Mar 15, 2020 4:10 pm

Rick Ferri wrote:
Sun Mar 15, 2020 4:09 pm
Unusual for Fed action on a Sunday. They wanted to get it done before Pacific markets open this evening. Must be seeing something.

Rick
They are coordinating with other central banks, including Japan. It's 6am in Tokyo.

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Re: Fed Slashes Rates to Fight Coronavirus Slowdown WSJ 3/15/20

Post by theorist » Sun Mar 15, 2020 4:11 pm

Rick Ferri wrote:
Sun Mar 15, 2020 4:06 pm
Federal Reserve slashes interest rates to zero as part of wide-ranging emergency intervention

We'll see what happens to the yield curve now. A negative yield curve means negative interest rates.

Rick

At negative yields, is there any reason to purchase bonds instead of leaving your ballast $ in cash?

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Re: Fed Slashes Rates to Fight Coronavirus Slowdown WSJ 3/15/20

Post by Seasonal » Sun Mar 15, 2020 4:12 pm

CodeMaster wrote:
Sun Mar 15, 2020 4:10 pm
May I ask what this means when rates are slashed? What does it generally affect? Sorry for my noob question... :beer
It means the Fed is worried about the economy slowing and wants to stimulate economic activity. The Fed's specific mandate is stable inflation (which it interprets as 2%) and full employment. Those are their specific goals.

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Re: Fed Slashes Rates to Fight Coronavirus Slowdown WSJ 3/15/20

Post by Seasonal » Sun Mar 15, 2020 4:13 pm

Seasonal wrote:
Sun Mar 15, 2020 4:10 pm
Rick Ferri wrote:
Sun Mar 15, 2020 4:09 pm
Unusual for Fed action on a Sunday. They wanted to get it done before Pacific markets open this evening. Must be seeing something.

Rick
They are coordinating with other central banks, including Japan. It's 6am in Tokyo.
Presumably they are seeing the world go into lockdown, with obvious negative effects on economies.

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Re: Fed Slashes Rates to Fight Coronavirus Slowdown WSJ 3/15/20

Post by drk » Sun Mar 15, 2020 4:14 pm

onourway wrote:
Sun Mar 15, 2020 4:07 pm
Looks like we're about to find out what happens when we go into a recession and the Fed finds itself with all chambers empty.
This is the Fed's acknowledgement that we're almost certainly already in a recession and that we need to do what we can to limit its damage.

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Re: Fed Slashes Rates to Fight Coronavirus Slowdown WSJ 3/15/20

Post by Pawpatrol » Sun Mar 15, 2020 4:14 pm

Seems like the asset class most protected by this is real estate? Mortgage rates will fall more and that will halt foreclosures and seems inflation may show up in housing while deflation in goods/services?


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Re: Fed Slashes Rates to Fight Coronavirus Slowdown WSJ 3/15/20

Post by z3r0c00l » Sun Mar 15, 2020 4:16 pm

theorist wrote:
Sun Mar 15, 2020 4:05 pm
With rates at zero now, I wonder what tools they have remaining if this doesn’t suffice?
Rates can go below zero, so future rate drops are the most obvious answer to this, not that I expect it to happen. As to other 'nuclear' level options, the FED is probably out of options now that they committed to buying $1.5 trillion in securities. Next up is the Congress with plenary purse power and the ability to do a wide range of things. They did some pretty hefty stuff back during the Great Recession, like TARP.

I would expect loans and bailouts for many corporations such as airlines, coupled with more relief for main street to make the former pill easier to swallow. Unemployment insurance may get extended, increased FDIC limits, the usual confidence builders.
Last edited by z3r0c00l on Sun Mar 15, 2020 4:20 pm, edited 1 time in total.

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Re: Federal Reserve just cuts rates to zero. Do you think the worst is over?

Post by Sockpuppet » Sun Mar 15, 2020 4:16 pm

Heck no.

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Re: Federal Reserve just cuts rates to zero. Do you think the worst is over?

Post by willthrill81 » Sun Mar 15, 2020 4:16 pm

Some epidemiologists believe that one million Americans may already be infected with the Coronavirus.

The World Health Organization currently estimates the mortality rate of the virus to be 3.4%.

At that rate, 34,000 Americans are expected to die if no one else in the country gets infected.

Do you still think that the worst is over?
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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Re: Federal Reserve just cuts rates to zero. Do you think the worst is over?

Post by MotoTrojan » Sun Mar 15, 2020 4:17 pm

Nope. The Fed just proved that Friday's rally wasn't the beginning of the end of this bear.

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Re: Fed Slashes Rates to Fight Coronavirus Slowdown WSJ 3/15/20

Post by blueleaf » Sun Mar 15, 2020 4:17 pm

Pawpatrol wrote:
Sun Mar 15, 2020 4:14 pm
Seems like the asset class most protected by this is real estate? Mortgage rates will fall more and that will halt foreclosures and seems inflation may show up in housing while deflation in goods/services?
Knowledgeable bogleheads; do you expect mortgage rates to fall as a result?

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Re: Fed Slashes Rates to Fight Coronavirus Slowdown WSJ 3/15/20

Post by JAZZISCOOL » Sun Mar 15, 2020 4:18 pm

Correction - removed global stock futures post. Schwab's future trading page were STALE figures and not updated. Please disregard and look at your broker's live future and stock trading.

Things are moving very quickly right now.
Last edited by JAZZISCOOL on Sun Mar 15, 2020 4:41 pm, edited 1 time in total.

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Re: Fed Slashes Rates to Fight Coronavirus Slowdown WSJ 3/15/20

Post by Sockpuppet » Sun Mar 15, 2020 4:19 pm

z3r0c00l wrote:
Sun Mar 15, 2020 4:16 pm

Rates can go below zero, so future rate drops are the most obvious answer to this.
A lot of stuff can’t happen is happening.

We’re going to see negative rates.

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Re: Federal Reserve just cuts rates to zero. Do you think the worst is over?

Post by KlangFool » Sun Mar 15, 2020 4:20 pm

Folks,

If the interest rate goes down to negative, does that mean we have deflation? If that is true, won't CASH be earning a good return?

KlangFool

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Re: Fed Slashes Rates to Fight Coronavirus Slowdown WSJ 3/15/20

Post by willthrill81 » Sun Mar 15, 2020 4:20 pm

The problem the globe is grappling with is not a financial one. Finances are the tail. The dog is all of the people being infected, unable to go to work for weeks, and all of the people dying.

The Federal Reserve cannot solve this problem.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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Re: Fed Slashes Rates to Fight Coronavirus Slowdown WSJ 3/15/20

Post by z3r0c00l » Sun Mar 15, 2020 4:21 pm

Sockpuppet wrote:
Sun Mar 15, 2020 4:19 pm
z3r0c00l wrote:
Sun Mar 15, 2020 4:16 pm

Rates can go below zero, so future rate drops are the most obvious answer to this.
A lot of stuff can’t happen is happening.

We’re going to see negative rates.
Note that I said "can" rather than "can't." However I don't think rates will go below zero in this country, there is a psychological barrier to doing it for some reason. It feels too "European." :D

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Re: Federal Reserve just cuts rates to zero. Do you think the worst is over?

Post by willthrill81 » Sun Mar 15, 2020 4:22 pm

KlangFool wrote:
Sun Mar 15, 2020 4:20 pm
Folks,

If the interest rate goes down to negative, does that mean we have deflation? If that is true, won't CASH be earning a good return?

KlangFool
Negative interest rates will make gold look more attractive than previously.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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Re: Fed Slashes Rates to Fight Coronavirus Slowdown WSJ 3/15/20

Post by jjwpls » Sun Mar 15, 2020 4:23 pm

drk wrote:
Sun Mar 15, 2020 4:14 pm
onourway wrote:
Sun Mar 15, 2020 4:07 pm
Looks like we're about to find out what happens when we go into a recession and the Fed finds itself with all chambers empty.
This is the Fed's acknowledgement that we're almost certainly already in a recession and that we need to do what we can to limit its damage.
Would the Fed push rates into negative territory eventually?
Last edited by jjwpls on Sun Mar 15, 2020 6:20 pm, edited 1 time in total.

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Re: Fed Slashes Rates to Fight Coronavirus Slowdown WSJ 3/15/20

Post by veggivet » Sun Mar 15, 2020 4:24 pm

The virus is unimpressed.
If you watch your pennies, your dollars will take care of themselves.

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Re: Federal Reserve just cuts rates to zero. Do you think the worst is over?

Post by physixfan » Sun Mar 15, 2020 4:24 pm

Wow this is exciting. Imagine what happens if the interest rate is already 0 and there's another 10% drop for SP500 index some day...

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Re: Fed Slashes Rates to Fight Coronavirus Slowdown WSJ 3/15/20

Post by BlackcatCA » Sun Mar 15, 2020 4:24 pm

Would banks also move interest rates to zero? That will hurt savers, many here.

Credit card companies should adjust rates so people/small businesses can borrow, but unfortunately they are often the last to move rates, if at all. Fed should make them lower rates if they have the power.

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Re: Federal Reserve just cuts rates to zero. Do you think the worst is over?

Post by rustymutt » Sun Mar 15, 2020 4:25 pm

The markets may be falling, but at least it's not the sky falling. Stay the coarse!
The sky might fall some more this next week.
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Last edited by rustymutt on Sun Mar 15, 2020 4:27 pm, edited 1 time in total.
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Re: Fed Slashes Rates to Fight Coronavirus Slowdown WSJ 3/15/20

Post by dh » Sun Mar 15, 2020 4:25 pm

I am not an economist, yet I struggle to see why some in the media perceive this as a positive. Doesn't this simply suggest that the economy is declining and the dollar will get weaker and weaker. Perhaps it is needed (I am not arguing that point), yet I don't understand the positive spin. :shock: My initial thought -- Friday was a "buy the rumor rally, to be followed by sell the news reality." I look forward to learning from everyone here! Be well all!

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Re: Fed Slashes Rates to Fight Coronavirus Slowdown WSJ 3/15/20

Post by guyinlaw » Sun Mar 15, 2020 4:25 pm

JAZZISCOOL wrote:
Sun Mar 15, 2020 4:18 pm
Global stock futures are up across the board 3:17 pm MT. SP500 E-mini +8%
That is Friday increase.. None of the futures start trading till 6PM EST Sunday.

It is 6:25 AM in Tokyo. New Zealand exchange is open and is down 1.4% (NZX 50 index)
Time is your friend; impulse is your enemy. - John C. Bogle

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Re: Federal Reserve just cuts rates to zero. Do you think the worst is over?

Post by rustymutt » Sun Mar 15, 2020 4:26 pm

MotoTrojan wrote:
Sun Mar 15, 2020 4:17 pm
Nope. The Fed just proved that Friday's rally wasn't the beginning of the end of this bear.

That's what I thought. OMG the timing.

:annoyed
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Re: Fed Slashes Rates to Fight Coronavirus Slowdown WSJ 3/15/20

Post by drk » Sun Mar 15, 2020 4:26 pm

jjwpls wrote:
Sun Mar 15, 2020 4:23 pm
Would the Fed push rates into negative territory eventually?
No idea. Hopefully the fiscal response will be sufficient to make that unnecessary.

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Re: Fed Slashes Rates to Fight Coronavirus Slowdown WSJ 3/15/20

Post by bgf » Sun Mar 15, 2020 4:26 pm

Pawpatrol wrote:
Sun Mar 15, 2020 4:14 pm
Seems like the asset class most protected by this is real estate? Mortgage rates will fall more and that will halt foreclosures and seems inflation may show up in housing while deflation in goods/services?
what happens when people stop making money and cant pay rent or make mortgage payments?
“TE OCCIDERE POSSUNT SED TE EDERE NON POSSUNT NEFAS EST"

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Re: Federal Reserve just cuts rates to zero. Do you think the worst is over?

Post by Tdubs » Sun Mar 15, 2020 4:27 pm

This feels like the 1/2 percent cut, desperate.

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Re: Fed Slashes Rates to Fight Coronavirus Slowdown WSJ 3/15/20

Post by Corsair » Sun Mar 15, 2020 4:27 pm

Could they go negative rates Wed during FOMC?
Last edited by Corsair on Sun Mar 15, 2020 4:36 pm, edited 2 times in total.
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Re: Fed Slashes Rates to Fight Coronavirus Slowdown WSJ 3/15/20

Post by zvez » Sun Mar 15, 2020 4:28 pm

can see the fiscal stimulus, but cutting rates to zero seems needless, it's not going to get people going out and spending anything until lockdown is over and the cases are declining. BUT trump has been pushing for negative interest rates for a long time, he got what he wanted. :(

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Re: Fed Slashes Rates to Fight Coronavirus Slowdown WSJ 3/15/20

Post by willthrill81 » Sun Mar 15, 2020 4:29 pm

Corsair wrote:
Sun Mar 15, 2020 4:27 pm
Should I be selling out of bonds and putting more towards my mortgage?
Can you do so without significant taxable gains?
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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Re: Fed Slashes Rates to Fight Coronavirus Slowdown WSJ 3/15/20

Post by MotoTrojan » Sun Mar 15, 2020 4:30 pm

theorist wrote:
Sun Mar 15, 2020 4:11 pm
Rick Ferri wrote:
Sun Mar 15, 2020 4:06 pm
Federal Reserve slashes interest rates to zero as part of wide-ranging emergency intervention

We'll see what happens to the yield curve now. A negative yield curve means negative interest rates.

Rick

At negative yields, is there any reason to purchase bonds instead of leaving your ballast $ in cash?
Rates were already negative in real (inflation adjusted) terms, so nothing special happens with they drop through 0% nominal; they still are a poor investment unless rates continue down.

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Re: Fed Slashes Rates to Fight Coronavirus Slowdown WSJ 3/15/20

Post by squirm » Sun Mar 15, 2020 4:32 pm

Fed panics. QE5 has now been born.

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Re: Federal Reserve just cuts rates to zero. Do you think the worst is over?

Post by yohac » Sun Mar 15, 2020 4:32 pm

physixfan wrote:
Sun Mar 15, 2020 4:24 pm
Wow this is exciting. Imagine what happens if the interest rate is already 0 and there's another 10% drop for SP500 index some day...
And "some day" could easily be tomorrow...

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Re: Fed Slashes Rates to Fight Coronavirus Slowdown WSJ 3/15/20

Post by willthrill81 » Sun Mar 15, 2020 4:32 pm

zvez wrote:
Sun Mar 15, 2020 4:28 pm
can see the fiscal stimulus, but cutting rates to zero seems needless, it's not going to get people going out and spending anything until lockdown is over and the cases are declining.
Precisely. Interest rates were not remotely the cause of the current problem and are completely incapable of resolving it.

In that gold is a sort of 'anti-dollar', what David Stein refers to as a 'sort of bet against the central banks', I'm going to predict that gold will go up in value this week. The markets are going to see that the Fed is scared and impotent.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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Re: Fed Slashes Rates to Fight Coronavirus Slowdown WSJ 3/15/20

Post by Triple digit golfer » Sun Mar 15, 2020 4:32 pm

Somebody help me understand. What will this do to bond fund income? I'm not talking about NAV/price appreciation, but income. Can they actually have a negative income return? I think no. Wasn't the rate close to zero in 2008 and beyond, yet bond income returns were still 2-4%.

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Re: Federal Reserve just cuts rates to zero. Do you think the worst is over?

Post by dellfanboy » Sun Mar 15, 2020 4:33 pm

What does this mean for mortgage rates? Will they go up or decrease?

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Re: Fed Slashes Rates to Fight Coronavirus Slowdown WSJ 3/15/20

Post by onourway » Sun Mar 15, 2020 4:33 pm

Overall this feels highly premature. As Will notes, this is nothing that the Fed can solve right now. Things can't turn around until people are able to return to normal work and travel schedules. Any bump this creates will likely be swamped by other news in the very near future.

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