a 50 basis point rate cut was already priced into the market

[unblock]

the market might have been mildly surprised that the fed chose to do it today rather than wait until the next fomc meeting on march 18, but the market had already priced in a 100% chance of a 50 basis point rate cut.

from time to time, and particularly when the market is volatile, i keep an eye on this website:

https://www.cmegroup.com/trading/interest-rates/countdown-to-fomc.html

it converts the interest rate futures market pricing data into the implied percentage probabilities of the various rate cut possibilities.

yesterday it showed the markets were expecting a 100% chance of a 50 basis point rate cut.



this means that the market soaring yesterday was in expectation of this rate cut, today's market is merely getting comfortable with the fact that the expectations turned out to be right, plus some adjusting to the idea that it happened today rather than in two weeks.

beyond that, the market is trying to find a bottom, and there's always a ton of volatility when it does that.



politically, i wouldn't read too much into today's market "reaction" to the rate cut -- it essentially reacted yesterday.


fwiw, i think the cut was pretty unambiguously correct. i don't think this was a political decision at all. it was unanimous and the expectations of recession have increased remarkably in just the last week or so as china is severely curtailing their economy in a (likely futile) effort to contain covid-19.

inflation expectations have similarly plummeted for largely the same reasons.

[Mike 03]

1. Recommended

and kicked.

[uponit7771]

2. K&R, 750 million Chinese were quarantined for weeks that's going to leave a mark

[unblock]

3. and it's not just them.

given they're at ground zero for this and have authoritarian controls, they're in a position to take drastic actions.

but companies are canceling travel and conventions and there are other signs of companies slowing things down while they wait and see.


economists have been suggesting for many years that a recession is "1-2 years away but no one knows when it will happen or what will trigger it".

i think we finally found the trigger.

[uponit7771]

6. +1, the drop in the market look structural and then I found out about the 750 million Chinese

... and knew that this was going to be one of those we sessions were we're not going to lift out for a second

[wishstar]

4. If only 25, markets would fall more and with 50 there's room for another 50 later this year

anything over 50 right now would signal even more underlying dire conditions.

Now speculation will turn to timing of next 50 rate cut depending on data that starts coming in at end of this quarter.

[SCantiGOP]

8. We are using up our anti-recession ammunition

When the attack comes - in the form of the next crippling recession - we will find we have nothing left to jumpstart the economy. This is foolish economic policy and a reflection of the fact that 1- Trump does not have any understanding of macroeconomics, and 2- he doesn't care what happens to the economy as long as he can keep the economy afloat until Nov 3.

[unblock]

10. this actually *is* being used to fight recession

the chinese response has been to shut down economic activity, which has a global ripple effect. this is not the stock market crashing for no reason, it saw a sudden large contraction shock and repriced everything.

this is actually on of the more appropriate uses of rate cuts we've seen in a while as it's very closely tied with an actual economic contraction event.

i agree that donnie has no clue, but unanimous fed decisions for a 50 basis point cut between fomc meetings just don't happen without there being some solid economic basis for it.

companies across the globe are scaling back business and travel and so on.

[SCantiGOP]

11. Rate is now down to 1%

A recession hits we will not get much out of a cut to zero.
Sorry, we just have to disagree. I think the rate was already too low, and that the previous cuts and this one have only one cause: Trump has threatened (not publicly of course) to fire the Fed chief if he didn't cut the rate.

We have a bubble building that may be as big or bigger than the housing bubble that led to the Great Recession in 2008. We are, as usual, not looking to the long term with our macroeconomic policies.

[unblock]

12. i don't disagree with your other points

the foot never really got taken off the accelerator and a number of markets seem well into bubble territory.
i also agree that donnie is putting unprecedented pressure on the fed.

that said, this particular rate cut is closely tied to an adverse economic shock. this could very well be the pin that pops the balloon.

it could get very ugly for quite a while. not just meaning the markets, but the u.s. and global economies.

i don't see how we get out of this without a global contraction, unless a miracle vaccine shows of almost immediately.

[unblock]

9. the markets are currently expecting only another 25 points on average before the election

but as indicated, expect a lot of volatility....

[MANative]

5. This is exactly what my financial advisor told me this morning.

Said to sit tight - no changes for now. That's what I'm doing.

[safeinOhio]

7. Will they run out of ink.

Printing presses at the mint will be on overtime.