(Countering new crown pneumonia) Economic war "epidemic" record: Nearly zero interest rate plus quantitative easing Fed water release effect?
China News Agency, Beijing, March 16 (Xia Bin) Overnight, the Fed almost emptied the "arsenal" and returned to the moment of the 2008 financial crisis.
On the 16th, Beijing time, the Fed suddenly announced a sharp 100-bp rate cut, reducing the federal funds rate to the 0-0.25% range, and announced that it would purchase at least US $ 500 billion of US Treasuries and US $ 200 billion of mortgage-backed securities in the next few months. The outside world sees this as restarting QE (quantitative easing).
The market is generally expected that the Federal Reserve will announce a 50 or 75 basis point rate cut at a regular interest rate meeting from March 17 to 18, local time. But now, the Fed can't wait for three days. The "0 interest rate plus QE" is precisely to protect the economy from the new crown pneumonia epidemic and to promote maximum employment and price stability.
Federal Reserve Chairman Powell said buying bonds would create a more accommodative environment and asset purchases are designed to support credit availability. There is no upper limit on the size of the Fed's weekly or monthly asset purchases, and the Fed will "vigorously" purchase assets. And the Fed is unlikely to take negative interest rates as a next step to help the economy.
Just after the Fed announced a rate cut, US President Trump said that "this move has made me extremely happy, and I want to congratulate the Fed" and believes that the market should be "excited" by the Fed's actions.
But the market did not respond as expected. U.S. stock index futures fell sharply after the announcement of interest rate cuts. The Dow Jones Industrial Average futures fell more than 1,000 points, reaching a 5% limit, triggering a limit. Risk aversion in the market is high, and the prices of gold and silver have strengthened.
"Shot a single shot, if you fail to kill the enemy, put yourself at risk." Cheng Shi, chief economist of ICBC International said.
What effect can the Fed's "water release" have this time?
"The effect of monetary policy will be very limited." Wang Youxin, a researcher at the Bank of China Research Institute, bluntly stated that the Fed's move would be tantamount to drinking and quenching thirst. The introduction of interest rate reduction measures can only reflect the grim economic growth situation in the United States and the spread of financial market panic.
He further stated that the interest rate cut is only a passive measure in the downturn of the economy. It can only be postponed but cannot reverse the situation, and the interest rate cut cannot change the deep supply-side problems in the United States, such as economic virtualization, industrial hollowing out, slowing technological change, and increasing labor productivity Rapid decline, population aging and other issues, and interest rates are close to zero, the monetary policy transmission mechanism will also fail.
Cheng Shi pointed out that, from the perspective of the nature of the risk, this outbreak is a global public health crisis, and the fundamental response policy is anti-epidemic measures. Monetary easing just stops the boiling water, making it difficult to draw a salary at the bottom of the kettle. Especially after the US Federal Reserve has lit up “policy ammunition” once, if the US domestic epidemic situation escalates sharply, the financial market will fall into panic more quickly due to the lack of follow-up policies by the US Federal Reserve.
"The constraints on the effectiveness of the Fed's interest rate cuts also come from the lack of the overall US policy mix." Cheng Shi said that due to the intensification of the political game on the eve of the US election, the delay in the new round of fiscal stimulus failed to relay, resulting in monetary policy In terms of social assistance policies, compared with the advance and exceeding expectations of monetary policy, the epidemic prevention measures have always been lagging behind.
Just as Xing Ziqiang, chief economist of Morgan Stanley China, said that the "anti-epidemic" of the economy should be carried out in three steps to curb the virus, restore production and stimulate demand, and answer the questions in the correct order. "If you ca n’t come up, you can go over the first two questions and go straight to the last question. Even if there is zero interest rate plus fiscal stimulus for consumption, the epidemic is uncontrolled, and it has an effect on the market and the economy. medicine."
On the same day, the People's Bank of China announced the launch of a one-year medium-term loan facility (MLF) operation of 100 billion yuan, with a winning bid rate of 3.15%, which was unchanged from February.
Dongfang Jincheng's chief macro analyst Wang Qing believes that the Fed's restart of the financial crisis monetary policy model will significantly expand the flexibility of China's domestic monetary policy. With the escalation of the global epidemic, the possibility of countercyclical adjustments of domestic monetary policy may increase in the future. That is to say, given that China ’s monetary policy space is more abundant, it is possible to increase MLF interest rate cuts and overall RRR cuts in the future. (Finish)