US President Trump's wishes on the 13th came true on the 15th!

The Fed announced on the 15th local time that it will lower the target range of the federal funds rate to an ultra-low level of 0-0.25%, and launched a $ 700 billion quantitative easing plan. Some media claim that this interest rate range is actually the zero interest rate.

Data Map: Federal Reserve Chairman Powell. Photo by China News Agency reporter Chen Mengtong

Interest rate cut + quantitative easing, the Fed is a bit urgent

This is less than half a month, the Federal Reserve cut interest rates again by 100 basis points! On March 3, the Federal Reserve announced a sharp 50-bp cut in interest rates, reducing the target range of the Federal Reserve Fund's interest rate to 1% -1.25%.

The market had expected the Federal Reserve to cut interest rates by another 75 basis points at this week ’s regular monetary policy meeting, to the 0.25% -0.5% range. The New York Times quoted analysts as saying that the Fed's rate cut showed that they are becoming radical, trying to relax credit in as many ways as possible, and "acting quickly and immediately."

Not only did it suddenly cut interest rates sharply, it also restarted its “quantitative easing” policy and launched a $ 700 billion quantitative easing plan. This measure is not common. From 2008 to 2014, the Fed implemented the “quantitative easing” policy on three large-scale purchases of bonds to stimulate economic development and escape the financial crisis.

The Federal Reserve statement said that Treasury bonds and institutional mortgage-backed securities play a central role in supporting credit flows to households and businesses. To support the smooth operation of the two bond markets, the Federal Reserve will purchase at least US $ 500 billion of US Treasuries and US $ 200 billion of institutional mortgage-backed securities in the coming months. The Fed will also reinvest all the principal of its holdings of institutional bonds and institutional mortgage-backed securities into institutional mortgage-backed securities.

Trump congratulates the Federal Reserve on doing so, "I am very happy"

On the 13th before the Fed cut rates, Trump shouted to the Fed that "the Fed must eventually lower interest rates to levels comparable to other central banks." Earlier, Trump also repeatedly called on the Federal Reserve leadership to reduce interest rates in order to respond to the crisis more effectively.

Data map: On March 13, local time, US President Trump announced a "national emergency" at the White House in response to the new crown pneumonia epidemic. Photo by China News Agency reporter Chen Mengtong

According to CNN, on the 15th, President Trump said that he welcomed the Fed's decision to reduce key interest rates in the context of the spread of the new crown virus, saying it was a "big step".

"I congratulate the Fed on doing this. It's great for our country," Trump reportedly commented on a decision to lower interest rates at a news conference.

Trump said, "I have to say, I am very happy. (Fed) They did not choose to complete in four steps over a long period of time, but chose one step in place." "I think market players should be very excited . "

Why did the Federal Reserve cut interest rates again?

The Federal Reserve issued a statement on the same day that the outbreak of the new crown pneumonia outbreak disrupted many countries, including the United States, and that global financial markets were also significantly affected. Available economic data indicates that the US economy has entered a challenging period.

Just one week after Beijing time, the global financial market was stricken by the new crown pneumonia epidemic and the oil price warhammer, and a "black week" was staged. Some people on Wall Street sighed that "the market has entered an unknown state."

As the stock market plummeted, the Dow fell 10.36% last week, the Nasdaq fell 8.17%, and the S & P 500 index fell 8.79%. European stock markets also recorded their biggest weekly decline since the 2008 financial crisis. The Nikkei 225 Index fell 15.99% for the week, the largest weekly decline since the week of October 10, 2008; the Korea Composite Index fell 13.17%, a record low of nearly 7 years.

Data since the Federal Reserve ’s January monetary policy meeting shows that the energy sector has been under pressure recently, market-based inflation compensation indicators have fallen, and survey-based long-term inflation expectations indicators have hardly changed. The Fed stated that the benchmark interest rate will remain at current levels until it confirms that the U.S. economy has withstood the test of recent events and is moving towards the goal of maximizing employment and price stability.

Can a rate cut boost the stock market?

Prior to the Fed ’s interest rate cut, the UK and Norway ’s central banks announced interest rate cuts last week, and the European Central Bank also announced an increase in quantitative easing last week. It will add an additional 120 billion euros in asset purchases by the end of the year and launch new long-term refinancing LTRO).

Summary of the weekly changes in important global stock indexes (March 9-14)

On the 13th, the G-20 finance ministers and central bank governors agreed in a recent statement that they will use all feasible policy tools, including appropriate fiscal and monetary measures.

The Northeast Securities Research Institute pointed out that a new round of global interest rate cuts has begun. "It is necessary to be wary that Japan and Europe's monetary policy is currently in a state of negative interest rates and zero interest rates, and there is little room for interest rate cuts and little effect."

The Guotai Junan team believes that after this round of interest rate cuts, there is very limited space for subsequent interest rate cuts for the global central bank, but referring to the words of Fed Chairman Powell: "We recognize that interest rate cuts will not reduce the infection rate or repair the broken supply chain. The liquidity brought by interest rate cuts may be difficult to offset the impact of the epidemic on demand.

"The biggest problem in the market right now is not the virus epidemic, but the emerging liquidity crisis. Frankly speaking, it is terrible, and it really defeated investor confidence in the market," said Kent Engelke, chief economic strategist at Capitol Securities Management.

After the Fed announced interest rate cuts, 10-year US Treasury yields fell by 32 basis points, and US stock Dow Jones Index futures and S & P 500 index futures both fell sharply and melted again. Hongye, Managing Director of Bank of Communications International, issued a comment on the 16th stating that the Fed went all out. The Fed has finished most of the bullets. The market was left streaking, and US stock futures fell again in a meltdown. Observe whether the S & P can hold the previous low of 2480 points. Basically, the outlook for the global economy is clouded.

Author: Cheng Chunyu Yi Xie view