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US Fed makes a Sunday afternoon rate cut to zero and said it would buy US$700 bln in US Treasuries and mortgage-backed securities

US Fed makes a Sunday afternoon rate cut to zero and said it would buy US$700 bln in US Treasuries and mortgage-backed securities

Here is the US Federal Reserve Bank statement, in full.

The coronavirus outbreak has harmed communities and disrupted economic activity in many countries, including the United States. Global financial conditions have also been significantly affected. Available economic data show that the U.S. economy came into this challenging period on a strong footing. Information received since the Federal Open Market Committee met in January indicates that the labor market remained strong through February and economic activity rose at a moderate rate. Job gains have been solid, on average, in recent months, and the unemployment rate has remained low. Although household spending rose at a moderate pace, business fixed investment and exports remained weak. More recently, the energy sector has come under stress. On a 12‑month basis, overall inflation and inflation for items other than food and energy are running below 2 percent. Market-based measures of inflation compensation have declined; survey-based measures of longer-term inflation expectations are little changed.

Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The effects of the coronavirus will weigh on economic activity in the near term and pose risks to the economic outlook. In light of these developments, the Committee decided to lower the target range for the federal funds rate to 0 to 1/4 percent. The Committee expects to maintain this target range until it is confident that the economy has weathered recent events and is on track to achieve its maximum employment and price stability goals. This action will help support economic activity, strong labor market conditions, and inflation returning to the Committee's symmetric 2 percent objective.

The Committee will continue to monitor the implications of incoming information for the economic outlook, including information related to public health, as well as global developments and muted inflation pressures, and will use its tools and act as appropriate to support the economy. In determining the timing and size of future adjustments to the stance of monetary policy, the Committee will assess realized and expected economic conditions relative to its maximum employment objective and its symmetric 2 percent inflation objective. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments.

The Federal Reserve is prepared to use its full range of tools to support the flow of credit to households and businesses and thereby promote its maximum employment and price stability goals. To support the smooth functioning of markets for Treasury securities and agency mortgage-backed securities that are central to the flow of credit to households and businesses, over coming months the Committee will increase its holdings of Treasury securities by at least $500 billion and its holdings of agency mortgage-backed securities by at least $200 billion. The Committee will also reinvest all principal payments from the Federal Reserve's holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities. In addition, the Open Market Desk has recently expanded its overnight and term repurchase agreement operations. The Committee will continue to closely monitor market conditions and is prepared to adjust its plans as appropriate.

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Voting for the monetary policy action were Jerome H. Powell, Chair; John C. Williams, Vice Chair; Michelle W. Bowman; Lael Brainard; Richard H. Clarida; Patrick Harker; Robert S. Kaplan; Neel Kashkari; and Randal K. Quarles. Voting against this action was Loretta J. Mester, who was fully supportive of all of the actions taken to promote the smooth functioning of markets and the flow of credit to households and businesses but preferred to reduce the target range for the federal funds rate to 1/2 to 3/4 percent at this meeting.

In a related set of actions to support the credit needs of households and businesses, the Federal Reserve announced measures related to the discount window, intraday credit, bank capital and liquidity buffers, reserve requirements, and—in coordination with other central banks—the U.S. dollar liquidity swap line arrangements. More information can be found on the Federal Reserve Board's website.

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Last week I suggested the Fed and BoE emergency rate cuts showed us what Fear looks like.
It did.
Today, this looks like Terror. Or worse. The resignation that we saw on the faces of those about to meet their makers at the hands of an ISIS blade captured in all its horror in front of the cameras.

Their experiment failed.

There were so many people addicted to leverage in 2008. Instead of sending them to rehab, Central Banks became the dealer.

The reactive Fed continues to play catch-up, fighting a battle it is ill-suited to handle given its outdated tools and intellectual framework. Jay Powell’s not fighting with one arm tied behind his back, he’s over across the street making sure there are enough light bulbs for people to use during the day.

FRBNY’s big announcement has been boiled down into wickedly small potatoes. Two auctions, half a trillion each, those along with a coming third were together the “bazooka” aimed at calming everyone down. Dealers bid for $78.4 billion of the first one and a paltry $17.0 billion in today’s. Yes, a total of $95.4 billion out of a possible $1 trillion, or less than 10% of what was made available.

As I wrote yesterday after the first shot of their dud-zooka:

Either things aren’t nearly as bad as they seem (literally no one is buying that scenario), or something is wrong in bank reserve-land. Perhaps dealers just don’t want them, or maybe they don’t have the spare collateral to post for them.

With the way now UST coupons are behaving, very 2008-ish, I seriously, seriously doubt it’s the first one. A crisis is upon us, the scale of which we won’t know for some time, and no one wants the Fed’s “money.” Link

Seems like RBs the world over, including ours, have entered into the final act. Curtain about to close and no one has written the sequel.

Crazy times. Hold on to your hat! Asset prices to double again?

Future liability cash flows, as well, in discounted present value terms. If not more given NZ's central bank cut rates in half twice today.

Nope. We're past the point where anyone can afford to pay for anything. The Fed has at best, bought some time for those who have the political sway to get out, to sell down their holdings and make for their bolt holes.

They will never, ever, ever be able to unwind this. The fed launched their nukes today, the market said, "nope"

Days to the General Election: 26
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