Dieuwer
Topic Author
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Joined: Tue Dec 26, 2017 6:27 pm

US FED announced QE5, slash rates to 0%

Sun Mar 15, 2020 9:47 pm

The Fed just has cut the FED funds rate to 0%-0.25%, as the "effects of the Coronavirus will weigh on economic activity in the near term and pose risks to the economic outlook"

https://www.federalreserve.gov/newseven ... 00315a.htm

I personally fail to see how this is going to help the real economy. It might give a boost to Wall Street, but on Main Street business will continue to be shutdown, people will continue to lose their jobs, and people will continue to become ill from Coronavirus infections.
It could even lead to severe stagflation as billions of new dollars will flood the system and chase a diminishing amount of goods. So the low and middle classes sit at home, broke and without affordable health care, while the billionaires on Wall Street just got ANOTHER bailout.

Sounds like a plan! :roll:
Last edited by atcsundevil on Sun Mar 15, 2020 11:16 pm, edited 1 time in total.
Reason: Edited title for clarity
 
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trpmb6
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Re: US FED announced QE5, slash rates to 0%

Sun Mar 15, 2020 11:40 pm

Honestly, this is getting old. The market is going to continue to slide until the virus is taken care of. You hear pundits say, the FED must take action! And then as soon as they do everyone is shocked and says, oh my goodness, this must mean the economy is worse than we thought! The fed cut rates to 0 like we said they should but how dare they actually do it!
 
zakuivcustom
Posts: 3284
Joined: Sat Jun 10, 2017 3:32 am

Re: US FED announced QE5, slash rates to 0%

Mon Mar 16, 2020 1:14 am

trpmb6 wrote:
Honestly, this is getting old. The market is going to continue to slide until the virus is taken care of. You hear pundits say, the FED must take action! And then as soon as they do everyone is shocked and says, oh my goodness, this must mean the economy is worse than we thought! The fed cut rates to 0 like we said they should but how dare they actually do it!


And as expected, Dow Futures down 1000+ again (Limit Down).

Quite frankly, the full economic impact is not even here yet in US. Companies will be impacted one way or another, just how much is the question.

And as I said - it is why using a lowering of interest rate to artificially prop up the market when economy is good is such a stupid idea. QE5/6/7/8 will be less and less impactful when things are bad like right now.
 
FTMCPIUS
Posts: 280
Joined: Fri Mar 10, 2017 7:10 pm

Re: US FED announced QE5, slash rates to 0%

Mon Mar 16, 2020 2:36 am

Dieuwer wrote:
The Fed just has cut the FED funds rate to 0%-0.25%, as the "effects of the Coronavirus will weigh on economic activity in the near term and pose risks to the economic outlook"

https://www.federalreserve.gov/newseven ... 00315a.htm

I personally fail to see how this is going to help the real economy. It might give a boost to Wall Street, but on Main Street business will continue to be shutdown, people will continue to lose their jobs, and people will continue to become ill from Coronavirus infections.
It could even lead to severe stagflation as billions of new dollars will flood the system and chase a diminishing amount of goods. So the low and middle classes sit at home, broke and without affordable health care, while the billionaires on Wall Street just got ANOTHER bailout.

Sounds like a plan! :roll:

Well, at least we won't be seeing any more rate cuts. There is no way the Fed will go negative, so now things will get REALLY interesting. :?:
 
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Aesma
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Joined: Sat Nov 14, 2009 6:14 am

Re: US FED announced QE5, slash rates to 0%

Mon Mar 16, 2020 3:03 am

trpmb6 wrote:
Honestly, this is getting old. The market is going to continue to slide until the virus is taken care of. You hear pundits say, the FED must take action! And then as soon as they do everyone is shocked and says, oh my goodness, this must mean the economy is worse than we thought! The fed cut rates to 0 like we said they should but how dare they actually do it!


This was already happening when things were good. Fed raised rates because the US economy was on overdrive, markets took it badly. Fed lowered rates because markets were worried, market became even more worried !

Then, there is Trump always asking for cuts. If the Fed had cut long ago, what would it be doing now, huh ! Too advanced a reasoning for Trump...
New Technology is the name we give to stuff that doesn't work yet. Douglas Adams
 
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Aesma
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Re: US FED announced QE5, slash rates to 0%

Mon Mar 16, 2020 3:07 am

As an aside, aren't financial markets supposed to represent the value of companies ? How come companies that are decades old, with a bright future, are now worth a lot less than a few weeks ago, even though there is no doubt they will get through this ? Sure, 2020 might be bad, maybe even 2021, but still.

It undermines the whole argument that stock markets are efficient.
New Technology is the name we give to stuff that doesn't work yet. Douglas Adams
 
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Francoflier
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Re: US FED announced QE5, slash rates to 0%

Mon Mar 16, 2020 5:18 am

Stocks are not representative of the value of a company anymore. Nowadays they only reflect the emotional and subjective value that people attach to a company, and their price fluctuations are amplified by the speculating culture that drives markets. Basically a Worldwide gambling business.

It's become a deeply flawed system as it has been overridden by technology and human greed.

As for the rate cut, well, big surprise... The rate was already barely above the floor as the preoccupation of the ruling class was to keep the market strongly bullish instead of consolidating the economy while it was good.
Case in point: POTUS...
He didn't unleash that virus, but that the economic consequences of it fall on his shoes are at least a bit of karma for his abysmal management of the economy.
I'll do my own airline. With Blackjack. And hookers. In fact, forget the airline.
 
DLFREEBIRD
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Joined: Thu Mar 05, 2015 6:07 pm

Re: US FED announced QE5, slash rates to 0%

Mon Mar 16, 2020 7:27 am

Why would any bank want to remortgage my home loan at these interest rates? Mine 3.5 now
I'm positive, going down to zero, won't lower my interest rate.

so, why did Trump tell the feds to do this? how does this help the average person? who is this helping?
 
RJMAZ
Posts: 1840
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Re: US FED announced QE5, slash rates to 0%

Mon Mar 16, 2020 8:20 am

DLFREEBIRD wrote:
Why would any bank want to remortgage my home loan at these interest rates? Mine 3.5 now
I'm positive, going down to zero, won't lower my interest rate.

so, why did Trump tell the feds to do this? how does this help the average person? who is this helping?

The interest you pay on a loan is usually 3-4% higher than the reserve interest rate. This goes towards the running of the bank and towards their profit.

If you are paying 3.5% now you might be paying 3% in a months time.
 
ThePointblank
Posts: 3337
Joined: Sat Jan 17, 2009 11:39 pm

Re: US FED announced QE5, slash rates to 0%

Mon Mar 16, 2020 11:09 am

DLFREEBIRD wrote:
Why would any bank want to remortgage my home loan at these interest rates? Mine 3.5 now
I'm positive, going down to zero, won't lower my interest rate.

so, why did Trump tell the feds to do this? how does this help the average person? who is this helping?

Banks right now are pretty spooked by the current coronavirus situation, which is making it more difficult for companies to secure loans.

The change of the Federal Reserve rate to 0% directly affects the overnight lending market; this is the market banks go to borrow cash to cover their needs for the day. The loan is due the next day, plus interest.

Basically, banks will try to forecast their liquidity needs for the day. If a bank feels that they don't have enough cash on hand to cover their needs for that day, they will borrow money on the overnight market that day. On the other hand, if the banks believes they have a surplus of cash on hand for that day, they will go to the overnight market to lend money to other institutions.

Changing this rate has an impact on the general macroecononic conditions; by lowering the rate, it creates a expansionary monetary policy to stimulate growth. A lower rate implies that the banks can borrow the funds from each other at a lower rate. Subsequently, the banks can charge lower interest rates to their customers, making loans more affordable to businesses and individuals. Therefore, businesses are able to obtain additional funds for various investment and expansion activities while the purchasing power of consumers also increases.

Conversely, if a country’s economy is overheated and there are signs of rising inflation, the central bank may enforce a contractionary monetary policy by increasing the rate. The rate hike discourages banks from excessive overnight lending activities.

Thus, the banks will raise interest rates charged to their customers to compensate for the higher overnight rates. This leads to a decrease in money circulation in the economy, which prevents inflation. However, it also discourages business activities.
 
anshabhi
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Re: US FED announced QE5, slash rates to 0%

Mon Mar 16, 2020 11:31 am

Aesma wrote:
As an aside, aren't financial markets supposed to represent the value of companies ? How come companies that are decades old, with a bright future, are now worth a lot less than a few weeks ago, even though there is no doubt they will get through this ? Sure, 2020 might be bad, maybe even 2021, but still.

It undermines the whole argument that stock markets are efficient.


I don't know but today's stock markets are made for traders not investors. Sure investors will be rewarded in the long term, but with all these algos and HFT, the level of volatility in the markets is unlikely to reduce ever in future.

More generally, from late 2018, stocks had pretty much rose without any particular reason. To some extent, this correction was long overdue. Compare the prices of stocks from 2018 and now, and you would realize the prices for good companies are still pretty justified. Just where they should have been.

Trump was very vocal about all time highs under his reign, while clearly, there was nothing to substantiate that rise. It has all fallen apart now
 
zakuivcustom
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Re: US FED announced QE5, slash rates to 0%

Mon Mar 16, 2020 1:49 pm

And to nobody's surprise, the first "circuit breaker" got triggered within second of market opening.

Perhaps second "circuit breaker" will get triggered for the first time ever? S&P "only" down ~11% for now.
 
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einsteinboricua
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Re: US FED announced QE5, slash rates to 0%

Mon Mar 16, 2020 2:05 pm

trpmb6 wrote:
Honestly, this is getting old. The market is going to continue to slide until the virus is taken care of. You hear pundits say, the FED must take action! And then as soon as they do everyone is shocked and says, oh my goodness, this must mean the economy is worse than we thought! The fed cut rates to 0 like we said they should but how dare they actually do it!

You just showed the paradox of the Trump administration, which is why the Fed's actions won't amount to anything.

Until the virus is taken care of (meaning a strong response plan to contain it, slow its spread, and test everyone is in place), no amount of QE will help the market or the consumer for that matter. If people can't spend their money because supplies are limited or venues are closed, dropping interest rates to 0% won't spur consumer spending.

Hence, the Fed just wasted ammo.

Also, if this is truly THE greatest economy ever, dropping interest rates to 0% isn't a vote of confidence.
"You haven't seen a tree until you've seen its shadow from the sky."
 
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casinterest
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Re: US FED announced QE5, slash rates to 0%

Mon Mar 16, 2020 2:06 pm

zakuivcustom wrote:
And to nobody's surprise, the first "circuit breaker" got triggered within second of market opening.

Perhaps second "circuit breaker" will get triggered for the first time ever? S&P "only" down ~11% for now.


The economy is potentially wrecked.
They are talking of 2-3 months of quarantines in the US, and that will trigger a 2-3 quarter recession.
I just wonder how long people will stay in quarantine. All those hourly workers that live paycheck to paycheck, and the travel and tourism industries will not be able to sustain not working for 2-3 months.
Where ever you go, there you are.
 
Sokes
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Re: US FED announced QE5, slash rates to 0%

Sun Mar 22, 2020 12:16 pm

I believe fear affects consumer sentiment? I don't speak of holidays on credit. I speak of the size of a car somebody believes he should afford.

Helicopter money is one possibility to deal with Corona. Transfer money on each taxpayer's bank account. It's a sure way to increase demand overall. But what use would it be for hotels or airlines? Moreover it may increase desire for unconditional income. And while the idea of a small unconditional income in itself is not bad, politicians will be able to collect votes just by demanding to increase the amount. That's not hypothetical. That's what happened in Goa. So better not to start with it from the beginning.

I am a believer in monetarism. But even I would agree for a transfer of salaries to businesses from government accounts which in turn should just get it from the central bank. It sure helps and doesn't have the negative impact of cheap money.
Unless in 2008, where banks didn't deserve help with their gambling losses, no business can be blamed for Corona. I see no reason why there shouldn't be a broad agreement over political parties.

Cheap interest does help airlines. But it may tempt companies to ignore debt and focus on share buybacks. It encourages risky investments and doubtful investments.
Credo of monetarism: Cheap money leads to stupid investments.
I think it's the wrong policy.
Why can't the world be a little bit more autistic?
 
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Aesma
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Re: US FED announced QE5, slash rates to 0%

Sun Mar 22, 2020 1:36 pm

DLFREEBIRD wrote:
Why would any bank want to remortgage my home loan at these interest rates? Mine 3.5 now
I'm positive, going down to zero, won't lower my interest rate.

so, why did Trump tell the feds to do this? how does this help the average person? who is this helping?


I don't know how it works in the US but here in France you can get less than 1% rates. Sure the bank doesn't make any money on it, but they hope you will be a good client in other ways.
New Technology is the name we give to stuff that doesn't work yet. Douglas Adams

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