U.S. Federal Reserve cuts interest rates urgently to calm market panic

U.S. Federal Reserve cuts interest rates urgently to calm market panic

■ Observer

The Fed slashed interest rates in an attempt to guide market expectations, thereby freeing up time and space for epidemic prevention in various countries.

While the market is waiting for the Fed's interest rate meeting on March 17-18, March 3, Beijing time, the Federal Reserve urgently cut the benchmark interest rate by 50 basis points to the 1% -1.25% range, and reduced the excess deposit reserve interest rate IOER 50 basis points to 1.1%.

This is the Fed's third surprise rate cut this century, the first being the September 11th incident in 2001 and the second being the 2008 financial crisis. Therefore, many media refer to this rate cut as "the first unconventional rate cut since the country's financial crisis."

Generally speaking, this kind of unconventional emergency rate cut indicates that the world is shrouded in sudden uncertainty, showing the panic power of the monetary authorities, and this time is no exception.

The Fed's surprise interest rate cut failed to relieve market tensions. In addition, its chairman Powell hinted that further measures may be taken this month. To this end, the three major U.S. stock indexes opened higher and lower on the day of the rate cut, a decline of nearly 3 percentage points. The 10-year term US Treasury yields fell below 1% for the first time, and the market was once again shrouded in high uncertainty.

The main reason for the Fed to take such a sudden cut in interest rates may be that the new crown epidemic has spread globally, and the domestic situation in the United States is not optimistic. The market is worried that the global industrial ecological chain will encounter a certain degree of interference, affecting normal customs clearance and inter-ecological ecological chain. The division of labor and cooperation has created a high degree of uncertainty for the economies of various countries. The Fed hopes to use this to appease the market and guide market expectations, thereby freeing up time and space for governments to prevent epidemics.

Obviously, this Fed's surprise interest rate cut is more similar to the rate cut under the September 11th Incident of 2001, rather than the surprise rate cut in response to the subprime mortgage crisis in 2008, which is a monetary policy response to an unexpected shock-the epidemic is global The uncertainty of proliferation, the uncertainty of the impact on the global economy, this external shock has really caught the Fed off guard and it is difficult to effectively evaluate what kind of impact it will have on the US economy. Therefore, it is natural to start with a strong first-hand strategy. Into its policy considerations.

As for whether the market is overreacting and whether the Fed's surprise cut in interest rates has increased the market panic index, no definitive judgment can be reached at this time. Because the Fed's interest rate cut itself is in the market's induction-feedback transmission, which is still in the process of continuous decomposition, at least not yet over.

If the epidemic affects the global industrial ecological collaboration chain in shock, then the Fed's interest rate cut policy at this time will be regarded as a legitimate market expectation guide, otherwise it will be regarded as the Fed's misconduct on the epidemic situation and aggravating the market panic index Important factors; however, this all belongs to Zhuge Liang's judgment after the fact, even if it makes sense, it has no practical significance.

It can be seen that the Fed cuts interest rates for the exogenous impact of the epidemic, and has the dual effect of not only issuing warnings to the market but also providing comfort. How the market interprets it and how destructive the epidemic is to the global economy will be the next step taken by the Fed. Decision factors for action. Therefore, compared with the interest rate reduction that treats the risk of endogenous economic recession, the interest rate reduction in response to the impact of the epidemic is not the same, that is, the interest rate reduction this time deals with unknown uncertainty, not risk with a deterministic probability.

□ Liu Xiaozhong (Finance columnist)