Fed cuts main interest rate to near zero, to boost assets by $700B | Hacker News Reader

Fed cuts main interest rate to near zero, to boost assets by $700B

bloomberg.com

50 pointsra724 comments

This is an incredibly bearish signal. The Fed essentially turned its biggest lever all the way, and there's little left in their toolbox. One can only speculate as to why they're panicking like this, but my guess is that it's largely political.

The next big thing would be for the Fed to start buying stocks directly, probably through ETFs, which is something it currently can't do. At the moment it can only buy mortgage backed securities and bonds.

The Fed's move to cut to zero has been expected by everybody over the last few sessions. This is not new information.

As for why they're doing this, well, monetary stimulus is really all the Fed can do, ineffective as it is, and in the vacuum of fiscal intervention from Washington I guess they feel that someone has to do something. By cutting all the way to zero they also put the ball in the government's/congress's court so the focus is on their inaction, where it should be.

As an emergency on a Sunday is a huge deal. It's a gigantic panic button that was just pressed

Maybe they wanted time for it to settle in before markets open?

> my guess is that it's largely political.

Trump made a HUGE deal of being “so surprised” that the announcement by the fed was made just a few minutes into his live press conference. He kept saying over and over that he had no idea this was going to be announced at such an opportune time.

Of course it’s political.

Not really bearish. More like a president who has undue and unprecedented influence over the Federal reserve and happens to be in an election year.

Fortunately it doesn't work that way and Presidents don't have that level of control. If they did, it would've gone to zero a long time ago.

You don't think Trump's bully pulpit is enough to steer the fed in the direction he desires?

For the downvoters: feel free. You're just ignoring the new reality. I'm not a supporter of this administration. But I'm a realist.

> The next big thing would be for the Fed to start buying stocks directly

There's a ZeroHedge article that says this would require Congress. Is that true?

Indeed, it would require congressional approval. That's likely the only reason it hasn't happened yet.

FWIW, there is precedent for this. The Bank of Japan owns something like 70% of all stocks in Japan via ETFs.

8 minutes older with more comments: https://news.ycombinator.com/item?id=22586743

Economic stimulus like this works if it incentivizes people to engage in more economic activity. But it won't because of the virus. In fact I'd argue it is immoral to tempt people into more economic activity right now, something which is significantly at odds with what we all need to do to minimize transmission. Insomuch as it affects the rates on existing loans and provides relief then that's a good thing, but its not well targetted for that purpose.

All of the sins from the results of ‘07-‘08 have brought us here. The underlying economy is sick. The nCovid-19 is just helping to expose it.

Until we as a society accept r > g and we begin to take appropriate measures things like this will become larger and larger instead of smaller. (1).

(1) https://en.m.wikipedia.org/wiki/Capital_in_the_Twenty-First_...

The real economy should be pretty rate insensitive at this point. This is the financial shenanigans of desperate policy makers.

This is a terrible thing to do right now.

There's a good chance we see negative interest rates in the US this year.

How would that work?

Same as in the EU where the ECB has a deposit rate of -0.5%. The deposits of banks at the central bank (aka "reserves") shrink over time according to the negative rate.

https://www.ecb.europa.eu/stats/policy_and_exchange_rates/ke...

Many central banks around the world have policies that have set rates below zero. Germany and Japan are the most high profile examples.

With negative rates, depositors pay to have money stored at a bank.

Yeah... not a good sign.

How’d that work out? Not well:

https://twitter.com/business/status/1239314620675915776?s=21

Love to my downvoters — hope you bought some stock Friday. ;)

Imagine if Trump had tried as hard to contain coronavirus as he’s trying to pump markets rn

I don't really understand the economics of it all, but feels bit like throwing gas the flames. The downturn is inevitable. Does this soften it a little bit, I do not know.

If people just stop traveling and spending money like normally, as they are currently everywhere in Europe, there isn't really anything you can do about it. Which will sooner or later happen in US too, that's for sure. Doesn't really matter how cheap the prices are. Unless a vaccine is developed in very near-future, it's now just playing time before a large portion of population will contract Covid-19.

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