Recent actions by the @federalreserve have been awe-inspiring; I’m not sure what words would be stronger than that- but they’re required.
The #Fed has gotten at interest #rates, the #mortgage market, the financing markets, and the #Treasury market (and particularly the functioning of the off-the-run-issues).
Specifically, tonight we’ve seen an historic 100 basis point #policy rate cut (and a commitment to maintain it until conditions normalize), #bank borrowing from the discount window cut 150 bps, to 0.25%, with term #funds to be offered…
Additionally, the #Fed is committing to $500B of #Treasury purchases (we think it will be in relatively short order) and $200B of MBS; new parameters for the FX swap lines, open market operations conducting repo at 0.0% and supervisory action to support the flow of credit.
Chair Powell and the #FOMC are also now appropriately buying all along the #yieldcurve, so while the #coronavirus’ effects are uncertain, the #Fed’s toolbox is still full of equipment.
With its recent actions, the #Fed has put a stake in the ground as the #centralbank to the world, while simultaneously being a partner with the rest of the world. And if needed, the #Fed can go bigger, or longer, in the execution of its programs.
Vitally, however, #ChairPowell has indicated that negative #rates are not appropriate for the U.S. #economy, whereas asset purchases and forward guidance are more appropriate policy tools: so, we won’t be following the path of #Europe or #Japan, which we think is critical.
Finally, the #Fed has pointed to the significant amount of uncertainty going forward, but there’s no uncertainty in its actions as it will begin executing them right away (Monday), with a $40B purchase.
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