The Federal Reserve slashed interest rates to zero percent and unleashed a massive $700 billion quantitative easing program on Sunday evening.
This is in addition to the $1.5 trillion in repo market funding the central bank announced on Wednesday.
Here is what the official QE4 (or QE5) will look like: $500 billion in Treasurys and $200 billion of agency-backed mortgage securities. The central bank plans to make its first $40 billion installment on Monday.
As part of its global cooperation with other central banks, the Fed also reduced the reserve requirements for thousands of banks to zero.
“We will maintain the rate at this level until we’re confident that the economy has weathered recent events and is on track to achieve our maximum employment and price stability goals,” Fed Chair Jerome Powell said in a statement. “That’s the test … some things have to happen before we consider … we’re going to be watching, and willing to be patient, certainly.”
Powell assured markets that the Fed will be a bit more patient in raising interest rates once the Covid-19 crisis subsides.
The huge news did not calm U.S. financial markets.
Dow Jones Industrial Average futures crashed 1,100 points before the limit down was triggered. Prices are prohibited from trading lower.
Will this be enough to satisfy equities? Or are traders still frightened by the uncertainty, the lack of a vaccine, and the hit the world’s largest economy will take?
Peter Boockvar, chief investment officer at Bleakley Advisory Group, said it best in an interview with CNBC:
“The Fed blasted its monetary bazooka for sure. This better work because I don’t know what they have left and no amount of money raining from the sky will cure this virus. Only time and medicine will.”
The opening bell should be interesting.
The FED just ensured we will go into a recession,12 months early. They are scaring main street and wall street, great job Jerome.