Shock and Awe from the Federal Reserve Meets a Skeptical Market

March 23, 2020

A series of statements released today at 12:00 GMT and prior to the North American start of trading represent an extraordinary array of quantitative monetary stimulus (QE) that is likely to surpass the size employed during the Great Recession. The intent is forestall an evaporation of financial market liquidity, to ensure that companies otherwise sound prior to the pandemic do not become victims of it, to help sustain households and municipalities through a period of enormous unemployment and depleted tax revenues. No pre-fixed limit has been placed on the size of the QE.

Today’s market action, nonetheless, that the economic policy task cannot be shouldered only by the Fed. And for the bulk of today, fiscal policy did not hold up its side of the bargain. Both the S&P 500 and the DJIA index fell by roughly another 3%, and the DOW closed 1.7% below its close on the day that President Trump was elected in 2016. It took a bit over 3-1/2 years for the Dow from then to climb 56% to 29,556, where it closed on February 12, but only 27 business days to throw that all away.

The vexing problems ahead seemingly mandate compromise in decision-making and cooperation in execution between Democrats and Republicans in the United States, their respective voting bases,  and between the U.S. government and the governments in former close allies of the United States. This will need to be done in both medical matters and on managing the economy. Steps one on the economy is convincing financial market participants that change is really coming, and building such trust after all that’s happened would be the greatest miracle of all.

Copyright 2020, Larry Greenberg. All rights reserved. No secondary distribution without express permission.

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