#spx #sp500 #fedfundrate - The Federal Reserve lowered the Federal Fund Rate today from 1.5% to 1% in the first rate cut outside of an FOMC meeting since Lehman Brothers collapsed in 2008. This came as the Federal Reserve Chairman, Jerome Powell, claimed that the economy is doing fine and unemployment is at a multi-decade low. If everything is so “fine”, then why the need for a rate cut? Why the need for a rate cut two weeks before the next FOMC meeting where interest rates and monetary policy are supposed to be decided? This is one of those instances where you need to be paying attention to what they are doing rather than listening to what they are saying. At no point in the past has the Federal Reserve, or any other government official/agency, ever come out and warned the public in advance of potential systematic dangers in the economy or stock market. Doing so would be a self-fulling prophecy and cause investors to begin selling immediately.
The past two instances the Federal Reserve was in heavy rate-cutting cycles were during the 2000 dot.com bust and again during the 2008 housing and financial crisis. If there is no crisis right now, then why are they employing crisis-level measures? Which fire are they attempting to extinguish before we see the smoke or hear the alarms?
During the two previous market crashes the Federal Reserve had to lower the Federal Funding Rate by 5% in order to calm markets. During the 2000 crisis we saw rates drop from 6% to 1%, and during the 2008 crisis rates fell from 5% to 0% where they stayed for nearly 10 years before being raised back to 1% in 2017. Rates topped out at 2.5% in 2019 which was the same year that the Federal Reserve began lowering again, three rate cuts in fact were seen in 2019. If we can expect another -5% rate cut to calm whatever crisis we’re facing this time around it indicates that we’ll be seeing negative interest rates before all is said and done since a 5% cut from a peak this time of 2.5% = -2.5%. This would be a new paradigm for the US financial system.
Get ready for volatility in stock prices as traders attempt to decipher what is really going on at the Federal Reserve and why they felt the sudden need for an interest rate cut. Covid19 fears appear to be weighing heavily on global markets which could be the cause for the rate cut as the Federal Reserve might be attempting to front-run what is likely to be a major slowdown in economic activity, not just in the US, but throughout the globe. China basically coming to a halt in production will most certainly send ripple affects throughout the world as global supply chains are being disrupted. China is the #2 economy in the world and the #1 producer of raw materials/goods that the rest of the world depends on in order to maintain their respective economies. If businesses around the world are unable to obtain the products from China that they require in order to run their operations it likely means that we are heading for another recession and new round of layoffs across the board.
Expect another rate cut in two weeks when the Federal Reserve conducts their FOMC meeting.
The past two instances the Federal Reserve was in heavy rate-cutting cycles were during the 2000 dot.com bust and again during the 2008 housing and financial crisis. If there is no crisis right now, then why are they employing crisis-level measures? Which fire are they attempting to extinguish before we see the smoke or hear the alarms?
During the two previous market crashes the Federal Reserve had to lower the Federal Funding Rate by 5% in order to calm markets. During the 2000 crisis we saw rates drop from 6% to 1%, and during the 2008 crisis rates fell from 5% to 0% where they stayed for nearly 10 years before being raised back to 1% in 2017. Rates topped out at 2.5% in 2019 which was the same year that the Federal Reserve began lowering again, three rate cuts in fact were seen in 2019. If we can expect another -5% rate cut to calm whatever crisis we’re facing this time around it indicates that we’ll be seeing negative interest rates before all is said and done since a 5% cut from a peak this time of 2.5% = -2.5%. This would be a new paradigm for the US financial system.
Get ready for volatility in stock prices as traders attempt to decipher what is really going on at the Federal Reserve and why they felt the sudden need for an interest rate cut. Covid19 fears appear to be weighing heavily on global markets which could be the cause for the rate cut as the Federal Reserve might be attempting to front-run what is likely to be a major slowdown in economic activity, not just in the US, but throughout the globe. China basically coming to a halt in production will most certainly send ripple affects throughout the world as global supply chains are being disrupted. China is the #2 economy in the world and the #1 producer of raw materials/goods that the rest of the world depends on in order to maintain their respective economies. If businesses around the world are unable to obtain the products from China that they require in order to run their operations it likely means that we are heading for another recession and new round of layoffs across the board.
Expect another rate cut in two weeks when the Federal Reserve conducts their FOMC meeting.