The Federal Reserve acts again, as market turmoil continues

Central banks are not known for their spontaneity. They do not tear up their calendars lightly. And when they do, it is not usually a good sign. Both the Bank of Japan and America’s Federal Reserve were scheduled to hold policy meetings later this week. But neither felt they could wait that long.

If that was all it needed to do, it could probably have waited until its regular meeting on March 17th and 18th. But it also faced a more urgent problem in two of the most important financial markets in the world: those for mortgage-backed securities and American Treasury notes. In times of crisis, such as recessions, wars or today’s covid-19 pandemic, investors flock to American Treasuries as a safe haven, driving their prices up and their yields down .

Will further measures be necessary? Certainly these ones failed to restore immediate calm to the markets. Following falls in stockmarkets across Asia and Europe on March 16th, the Dow Jones Industrial Average fell by an astonishing 13% and the S&P 500 index by 12%. After all, Mr Powell himself had pointed out that the economy was likely to shrink in the second quarter, as firms and people hunker down to avoid infection.

The Bank of Japan cannot afford to be so particular. It introduced negative interest rates more than four years ago and has been buying equities, through exchange-traded funds , for even longer. Although Japan has been more successful than Europe or America in slowing the spread of the covid-19 virus, its economy was already shrinking before the epidemic emerged.

North or south?

Cheaper capital won't save you. Fed want to hook you on debt needle oven more

Cutting interest rates to zero isn't going to do anything while people are panicking and there's no leadership.

Hi, please note the most recent RBNZ rate cut was prior to the most recent Fed rate cut. RBNZ cut happened on March 16 against the Fed on March 15, but that is due to time zone differences, RBNZ rate cut came about 4 hours ahead of the Fed's.

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