Federal Reserve

Trump Gets What He Wants as Federal Reserve Interest Rate Target Drops to Zero

Paired with a new round of quantitative easing, the Fed takes us back to the 2008 playbook.

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The Federal Reserve announced Sunday afternoon that it will shift its target interest rate to the zero to 0.25 range, as well as launching a new shades-of-2008 phase of "quantitative easing"—injecting $700 billion of new money into the economy via buying financial assets.

The idea, along with their announcement earlier this week of over a trillion of rotating repo loans to financial institutions with a wide variety of bonds for collateral, is intended to keep the financial end of the economy rolling as other sectors are brought to a halt by COVID-19 safety measures.

A wide variety of financial instruments are being accepted at the discount window for such loans from the Fed, including everything from Treasury bonds to state and city obligations to commercial, industrial, and agricultural loans to corporate bonds to commercial real estate and consumer loans.

In addition, as CNBC reports:

The Fed also cut reserve requirement ratios for thousands of banks to zero [and] said the Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank, the Federal Reserve, and the Swiss National Bank took action to enhance dollar liquidity around the world through existing dollar swap arrangements…The actions by the Fed appeared to be the largest single day set of moves the bank had ever taken…The quantitative easing will take the form of $500 billion of Treasurys and $200 billion of agency-backed mortgage securities. The Fed said the purchases will begin Monday with a $40 billion installment.

Yahoo! Finance gives some context, noting that:

the Fed said the financial institutions should feel comfortable tapping into the discount window as a tool for addressing "potential funding pressures." In the past, banks have been hesitant to tap into the direct lines of funding because of the stigma associated with relying on the Fed for emergency funds….The Fed also said firms could use their capital and liquidity buffers to lend, and reduced reserve requirement ratios to zero percent effective on March 26.

President Donald Trump had been jawboning and hectoring Fed chief Jerome Powell to make this drastic interest rate move for a long time to boost "his" economy in an election year.

But under current conditions, the move has a high risk of merely extending unnatural bubbles in certain asset values that will eventually crash, leaving monetary policy powerless to help. It has the additional risk of seeding high overall short-term price inflation of the sort we haven't seen in America in over three decades. The last time we've seen an annual price inflation rate over 5 percent, for example, was 1990.

The Fed says it will likely keep to these policies until it feels the economy is on the other end of the COVID-19 crisis.

 

 

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NEXT: Tired: There Are No Libertarians in a Pandemic. Wired: There Are Only Libertarians in a Pandemic.

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  1. So things would have been better under Clinton? Is that the Koch Reason libertarian position?

    1. No, under Crazy Bernie.

      1. Comrade Sanders would have addressed all issues relating to the virus by now, if he were in charge.
        By the time all those who are not registered democrats were re-educated, there would not be enough population to support the common cold, let alone a pandemic.

      2. Yes, taxing all citizens at 98% Federal rate and 2% state rate would have solved the corona virus weeks ago!

        1. 2% state? That’s a tax cut for me. Tell me more about your plan!

    2. I wonder what OBL thinks? Haha

    3. Undoubtedly we would still have to deal the virus were HRC President. The difference is the crisis would have been handled with more competence. Assuming the Republican held one of the Houses of Congress, we would have them acting a deficit hawks and it is likely the debt would be lower. The economy would then be in better shape to weather this storm.

  2. Another RINO move by Trump. He’s getting worse and worse the closer the election gets. Under what stretch of the imagination does the federal reserve get to buy private assets on their printed money.

  3. Good thing the Fed is a totally independent private entity so Trump isn’t responsible for anything they do!

  4. Trump Gets What He Wants as Federal Reserve Interest Rate Target Drops to Zero

    “Ron Paul Gets What He Wants as Federal Reserve is Audited”

  5. The Fed is going to do what it is going to do. It is the lender of last resort for the banking system and the only reason they are doing this now is because something in the financial system is majorly broken. Has been since the repo stuff last fall

    IDK what it is but I know the end game. The Fed will fail in stemming what is now far bigger than some repo panic. Banks and Wall St will then extort the govt like 2008. Take our crap off our hands and give us fresh new money to buy at the bottom – or we will shoot your US dollar and bring on revolution in the streets. It worked last time for them and since then they have simply continued blowing up bubbles and inflating asset prices for the 1%. That is all they know how to do and that is all the big and the 1% want.

    ENOUGH. I’d be interested in what people think of the idea I had in late Oct 2008. The US govt is far too dependent on banks and Fed as the market for its debt.

    The Treasury needs an alternative channel to distribute its debt so it can’t be held hostage. The only thing I can think of is:
    A GIRO type payments system (similar to the debit card model). Based solely on short-term T bills (no other lending). Where people – most likely individuals and small businesses – open a payments account at their local Post Office.

    These accounts would have no FDIC liability (T-bills are obviously not riskier than T-bills). They would pay no interest – but would never go negative either. The model is proven in most every country. That short-term debt would in fact be the payments money choice for those who open accounts so it can’t be called ‘coercion’. And in the event of yet another financial crisis – when the FIRE sector comes calling for bailouts, the US govt has an alternative distribution system for the constitutional money called ‘US dollar’ – so it won’t be vulnerable to threats.

  6. It is not the asset bubble (which just had some air let out) that is the problem; it is liquidity. That is why the Fed acted. What instantiated the Great Financial Crisis was freezing of liquidity. We don’t want that.

    In the case of an emergency, and that is what we face with SARS-nCov-2, it is a complication we don’t need. So, the Fed acted. My take is that this should be temporary – very temporary.

    1. It is almost never liquidity. Liquidity problems affect a single entity. Liquidity problems in the entire banking system are evidence of a solvency problem. Esp after 10 years of free money and the assumption that risk no longer exists.

      And it’s not temporary. It’s been happening since Sept or so. Fed balance sheet then – $3.8 trillion. Fed balance sheet before this weekend – $4.2 trillion. That’s already $400 billion of bailout and it ain’t Covid19. A steady growth since Sept.

      1. You’re ignoring most of that is from no interest loans. Are you denying TARP loans were paid back? I didnt agree with TARP, but it ended up being deficit neutral.

        1. Give me billions of dollars to buy at the 2009 lows. And if it works I’ll give you a billion dollars back

          1. For the FIRE sector, the TARP bailout was heads I win, tails I win
            For the govt, the TARP bailout was heads I break even, tails I lose.

            1. So you’re denying it ended up being deficit neutral? How were you actually harmed by someone else making a profit?

              1. You are a complete cronyist

                1. So you have no answer. Not surprising.

                2. Hey dumbass, I said I was against it. At the same time I can realize it ended up deficit neutral. so answer the fucking question.

                  1. Better than deficit neutral, but assuming no opportunity (risk) cost.

                    Wikipedia:

                    The May 2015 report of the TARP to Congress stated that $427.1 billion had been disbursed, total proceeds by April 30, 2015 were $441.8 billion, exceeding disbursements by $14.1 billion, though this included $17.7 billion in non-TARP AIG shares. The report predicted a total net cash outflow of $37.7 billion (excluding non-TARP AIG shares), based on the assumption the TARP housing programs’ (Hardest Hit Fund, Making Home Affordable and FHA refinancing) funds are fully taken up. Debt is still outstanding, some of which has been converted to common stock, from just under $125 million down to $7,000. Sums loaned to entities that have gone into, and in some cases emerged from bankruptcy or receivership are provided. Additional sums have been written off, for example Treasury’s original investment of $854 million in Old GM.[43]

                    The May 2015 report also detailed other costs of the program, including $1.157 billion “for financial agents and legal firms” $142 million for personnel services, and $303 million for “other services”

                    1. This post is a hoax. Or is it? Depends on what day it is, or what I mean by hoax.

                    2. I’m not pedantic, you’re pedantic!

                    3. Who cites WIKI as a source?
                      Why DOL does!

                    4. He’s not citing it as a source, he’s just pointing it out. Did he said he was citing it as a source? Why would you claim he’s citing it as a source?

                      And what, exactly, was incorrect in his post? What cite do you have to discredit his post? If you’re gonna respond to his post, you better have cites.

                      Oh I get it, you’re a Trump dick sucker.

                      Edit button- here is where it goes.

                    5. Government spending is never an opportunity cost. Once again you are actually pro government spending.

                      Loans are better than direct subsidy, as the money is intended to be paid back. Yet you advocate for pure spending. That along with you insisting on raising taxes makes you a leftist.

                  2. What question – how am I harmed by my government being used as a giant nonprofit line of credit by large companies that were failing? That instead used that free money to ensure that smaller companies and individuals failed instead? So they could then rig the market by eliminating the ‘mark to market’ rule that was the transparency about the risks of their balance sheet. Thus timing the day of the market low – and with opacity again, could commit fraud or take unknown risks again. Knowing that the next time they blew up – they could rinse and repeat.

                    EVERYONE outside the 1% has lost by the elimination of that basic element of a free market. The only risk of failure now is by the small/individual. The big have socialized all their risks.

                    And like a complete moron, you R’s have no concept whatsoever about the benefits of a free market. ‘Hey it was deficit neutral’

                    It was akin to stealing from petty cash – using that to buy drugs, selling the drugs to make a profit, and then putting the petty cash back.

                    1. How are you harmed by a temporary deficit neutral loan? That is the question. You seem to be avoiding it

                    2. A better topic on bailing out cronyism (that will NEVER-EVER-EVER- be repaid…Muni bond ETFs are in freefall, worse than 2008. NYC looks a lot like Detroit looked before bankruptcy, and has for some time now. Should the fed (future taxpayers or your kids, grandkids) bail out NYC muni holders (without repayment from the city) or should we let NYC go?

                    3. Should the fed (future taxpayers or your kids, grandkids) bail out NYC muni holders (without repayment from the city) or should we let NYC go?

                      Let NYC go. Like every place on Earth, it has more than enough of a)a tax base to pay for the governance it needs and b)force the creditors to write off and pay for the risks they assumed when they lent it money.

                      And the role of the feds is to operate a swift fair non-corrupt organized bankruptcy system. That was actually my main online recommendation during the 2008 crash. My PO Bank idea came a bit later. Hire a shit-ton of bankruptcy judges and forensic accountants (or reorganize how they work) because we’re going to need them fast and clogging up bankruptcy is not a cost the feds should be imposing on others.

                  3. He’s not citing it as a source, he’s just pointing it out. Did he said he was citing it as a source? Why would you claim he’s citing it as a source?

                    And what, exactly, was incorrect in his post? What cite do you have to discredit his post? If you’re gonna respond to his post, you better have cites.

                    Oh I get it, you’re a Trump dick sucker.

                    1. Ugh. Wrong spot. Edit button. This isn’t here.

              2. More importantly, how much have Jfree’s taxes gone up to pay for bailouts?

                If that changes, by all means, bring out the pitchforks and torches. Until then persecution complexes and martyrdom are lame.

                Everything is so terrible and unfair. Haha.

                1. Temporary loans are the least worst actions governments can take on these situations. I prefer no action from government for the most part, but direct subsidies are worse.

                  Jfree seems ignorant to that point.

                  1. For the record I was against TARP, but the important part of that question is “that will be repaid”. Bailing out NYC, Chicago or LA is a whole nother black hole that these leftists will start pushing.

  7. It will be interesting to see how Biden and Sanders react to this. Both Obama and McCain left the campaign trail to return to Washington to vote for TARP. For the most part, financial policy is like a viral epidemic: the politicians don’t understand it, so they generally defer to the “experts.”

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  9. When the economy grinds to a halt and people cant pay their bills, we’re lucky that Congress knows who the real victims are: the banks.

    1. Are the Banksters out to get you?

      1. They’re out to get all of us, quite obviously. Hopefully for pennies on the dollar.

    2. Well, part of Congress is operating that way, for sure.

  10. When do we get to negative interest rates? I’m trying to imagine my econ professor trying to explain how that works.

  11. Man, Keynesians never saw a problem they thought they couldn’t fix.

    Now assuming a recession is most likely coming, we won’t have the tools to fight it. Wonderful.

    Congress better get on paid sick leave and everything else to calm things down. It’s that uncertainty that is tanking the market- people not spending now and then hoarding their money because they rightfully have no idea if they’ll have a job in a month.

  12. Trump is like someone with a fake medical degree who cons his way into a doctor’s job. As long as people are coming in with colds and sprained ankles he can bluff his way through. As soon as something serious comes up, he’s hopelessly out of his depth.

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