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Did The Federal Reserve Just Purposely Try To Crash The Stock Market?
By Michael Snyder
Unless the Federal Reserve is purposely attempting to spread panic on Wall Street, the decisions that the Fed just made don’t make any sense at all. Back on March 3rd, the Federal Reserve announced an unscheduled emergency interest rate cut for the very first time since 2008. Wall Street immediately interpreted that as a “panic move” and the Dow Jones Industrial Average ended the session down 785 points. So Fed officials had to know what was going to happen once they announced an even bigger unscheduled emergency interest rate cut on Sunday. Predictably, stock futures hit “limit down” very rapidly, and now investors are bracing for a week of tremendous carnage.
But this didn’t have to happen. Yes, we witnessed three of the worst trading days in U.S. stock market history last week, but on Friday the Dow Jones Industrial Average was up 1,985 points. It was an absolutely epic rally, and if the Fed had not caused so much panic there may have been a good chance that the rally could have continued into next week.
In other words, U.S. stocks just had one of their best days ever, and there didn’t appear to be a need for any “emergency intervention” by the Fed.
If the Federal Reserve had just waited a couple of days until their normally monthly meeting, and if the Fed had just cut rates a quarter point, that would have likely been greeted by the markets with warm enthusiasm.
But instead, Fed officials decided to load up their bazooka and go for broke on Sunday. In addition to using up all of their “interest rate ammunition” in one epic volley, the Fed also officially restarted quantitative easing…
The Federal Reserve, saying “the coronavirus outbreak has harmed communities and disrupted economic activity in many countries, including the United States,” cut interest rates to essentially zero on Sunday and launched a massive $700 billion quantitative easing program to shelter the economy from the effects of the virus.
The new fed funds rate, used as a benchmark both for short-term lending for financial institutions and as a peg to many consume rates, will now be targeted at 0%-0.25% down from a target range of 1% to 1.25%.
These moves have “panic” written all over them, and investors immediately responded accordingly…Stock market futures hit “limit down” levels of 5% lower, a move made by the CME futures exchange to reduce panic in markets. No prices can trade below that threshold, only at higher prices than that down 5% limit.
Dow Jones Industrial average futures were off by more than 1,000 points, triggering the limit down level. S&P 500 and Nasdaq 100 futures were also at their downside limits.
As I mentioned above, Fed officials saw what happened immediately after their March 3rd emergency rate cut, and so this sort of response by the markets should have been foreseeable.As Wolf Richter has noted, these latest moves by the Fed were “the opposite of being confidence inspiring”…
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