Market Response Doesn’t Mean the Fed Is Useless
Rate cuts alone won’t change sentiment when so much about the coronavirus crisis is still unknown. But they can help cushion the blow.
At this stage, it’s completely reasonable for market participants to focus on worst-case scenarios.
Photographer: Johannes Eisele/AFPFinancial markets met Tuesday’s emergency interest-rate cut with a fresh wave of equity selling and bond buying. This probably wasn’t the reaction Federal Reserve Chair Jerome Powell was hoping for. Did the central bank just make things worse? This probably isn’t the right way to think about the current situation.
The week so far has had a classic “buy the rumor, sell the news” feeling as market participants surged into risk assets Monday on expectations of policy easing amid the growing coronavirus crisis, and then rushed back out on the news of that action the next day. I am not terribly surprised. We are still much closer to the beginning than the end of this episode. We don’t know the width or the depth of the river we are crossing, and we can’t clearly see to the other side yet.