Will Fed’s Cauterization Stop the Bleeding?

Federal Reserve Chairman, Jerome Powell, announced a 1/2% rate cut to the federal funds interest rate yesterday, in an extraordinary effort to stem the economic fallout being created by the coronavirus. It represents the first emergency adjustment and largest one-time cut, since the depths of the 2008 financial crisis. In response to the announced cut, the stock market rallied for about fifteen minutes. But fears of the still growing economic risks generated by the coronavirus retook center stage. By late Tuesday, stocks turned sharply lower and bond yields plummeted. Investors seeking refuge from stock market volatility are continuing to pile into bonds today, driving the yield on the 10-year to previously unimaginable lows.

The Federal Funds Rate is now set in a 1% – 1.25% range. At yesterday’s emergency news conference, Powell said, “The virus and the measures that are being taken to contain it will surely weigh on economic activity, both here and abroad, for some time.” Further he stated that the Fed is “prepared to use our tools and act appropriately, depending on the flow of events.” In spite of the domestic infection count and death rate continuing to rise, the stock market broke into positive territory right out of the gate today. Regardless of market optimism, the growing odds of global and domestic recession are setting up to overwhelm the Fed. The 5% interest rate cut necessary to counteract recession, simply doesn’t exist.

After yesterday’s report from the Fed, the head of economic research at Renaissance Macro Research, Neil Dutta, suggested that “the Fed’s tools are imperfect and not adequate to deal with a public health crisis…the panic needs to come from the opposite of 17^th Street,” which is where the White House is located. In the meantime, it appears investors are conducting business as usual and in spite of all the chaos fully expect to see another quarter-point shaved off interest rates at the March 18 gathering of the Fed. Some economists see this as a “panic move.”

The current economic condition is convoluted, confusing, and risky at best. But with only four quarter-point cuts left in its quiver, the Fed is becoming less and less of an asset. Don’t get caught without a chair when the music stops. Call the experts at American Bullion to obtain the historic asset protection of gold, silver and other physical precious metals. Call (800) 653-GOLD (4653) NOW!