03 Mar Fed Makes Emergency Move
As we expected, the Federal Reserve stepped in and made an emergency rate cut of ½% today. This is the first time the Fed has adjusted rates in an emergency meeting since 2008. The hope is that the rate cut will help make up for some of the economic and market losses that are happening as a result of the threats posed by the Coronavirus. However, since this will not truly help solve the root issue, it seems to be a temporary band-aid to help sooth the market. If deaths from the virus continue to grow, consumers will slow down their engagement in places where large groups congregate. This will cycle through the economy and businesses will slow. At that point, the Fed will wish they had more tools available to help stimulate economic growth. Adding the injection now seems premature to me.
Volatility in the stock market is high this morning. There seems to be an ongoing concern over whether or not investors should take the risk of investing in stocks without first understanding the true impact of the Coronavirus. I expect to see the market continue to trade based upon the impact and death rate both in the US and abroad. If the death rate continues to climb, we can expect stocks to continue to fall. This is not something the Fed will be able to solve. The stock market will be driven by consumer demand and the impact this virus will have on corporate profits.
I expect rate volatility to be high. If you are happy taking the lowest rate in history, lock. If you choose to hope for rates to continue to fall, do so by closely monitoring the markets.