Fed Watch

Fed Surprise Coronavirus Rate Cut; More Cuts Possible

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Vito J. Racanelli

Senior Editor & Market Intelligence Analyst

Well, they went and did it. In the words of the astronaut George Taylor (played by Charlton Heston) at the end of the original “Planet of the Apes” movie, “They finally really did it,” he says, while pounding the surf. It was the nuclear option.

So the Federal Reserve’s Open Market Committee (FOMC) “surprised” markets Tuesday with a 50 basis points rate reduction to the Fed funds rate, bringing it to a range of 1.00%-1.25%. I put surprise in quotes because I think the only shock was to newbies on Wall Street. Our very own new kids in the office here asked if the Fed was “allowed” to make a move outside an FOMC meeting. Isn’t naivete wonderful?

Anyway, the Fed chose the nuclear option to calm investor fears of the spreading coronavirus. I don’t know that it will do much to spare the economy from the fallout, but perhaps the Fed felt it had to do something, anything. The move is controversial as the Fed now has less bullets if and when a recession comes along.

I say “surprised” too because anyone closely following the bond markets and the Fed futures markets were not surprised. Indeed, right here in these pages last week I noted that the bond market action as well as the CME Fed futures trading were showing that a cut or cuts were coming. Fo...

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Vito J. Racanelli

Senior Editor & Market Intelligence Analyst

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