Archives of “March 16, 2020” day

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WSJ report that Facebook, Google, Amazon, and others form coronavirus task force

  
  Analysis

This is a good move – these tech behemoths can act as a positive assistance to help combat the impact of the COVID-19 outbreak.

Facebook is a hotbed of fake news and false information about the COVID-19 outbreak. This is not helpful. A lot of the disinformation and misinformation is being spread innocently but a lot is also being spread by more malignant actors.

The Federal Reserve (and coordinated global actions) at a glance – what it means

  
  Analysis
  Tags
In brief here’s what has happened, the Fed has
  • cut rates to zero
  • increased the length of loans for banks to 90 days
  • has lowered bank reserve requirements (the amount of cash they need to keep on hand, in brief) which will (this is the plan) free up funds for banks to keep customers afloat with lending and easier standard through the crisis
  • launched USD700 bn in new QE
  • all this in coordination with other central banks
A bit more detail:
  • the cut to rates to zero eases credit market conditions, lending was drying up
  • longer, extended time period  loans help eliminate panic in short-term lending market, in effect this will assist banks to keep lending. If this assists firms in avoiding mass layoffs (such as occurred in the GFC 2008 crisis), at the margin, it’ll help the economy.
  • Lower bank reserve requirements encourages bank lending as a complement to the Community Reinvestment Act (CRA) emergency measures the Federal Reserve put into place with their first pre-emptive cut back in early March (this involved steps to waive late fees, easing credit, for firms and consumers)
  • $700 b in new QE will (this is the plan) ease the recession ahead
  • coordination with other central banks on Sunday night pre much of Asia opening is a big step, meant to ease panic
  • CBs have committed to do more and for as long as needed
The FOMC and other central banks around the planet have made an emergency Sunday evening move. 
ps. If your immediate response to this news is its not good as its not a vaccine/cure for the virus you are missing the point – the Fed can’t do this. They do what they can with the tools available to them.
If your immediate response is its no good because we need fiscal efforts, again the Fed can’t do this.
If your immediate response is its not enough, well you may be correct. The Fed says it’ll do more if necessary and as long as necessary.

Federal Reserve acts on a Sunday evening to slash rates to near zero

  
  Analysis
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Federal Open Market Committee

  • cut interest rates for the second time in less than two weeks
  • emergency move
  • “The effects of the coronavirus will weigh on economic activity in the near term and pose risks to the economic outlook. In light of these developments, the Committee decided to lower the target range
  • The Committee expects to maintain this target range until it is confident that the economy has weathered recent events and is on track to achieve its maximum employment and price stability goals”
Headlines via Reuters:
  • fed cuts interest rates to near zero in response to coronavirus crisis, risks to economic outlook
  • says expects target interest rate will remain in range of 0 and 0.25% until economy has “weathered recent events” and is on track to meet inflation and employment goals
  • says crisis has “harmed communities and disrupted economic activity” in u.s. and other countries, will weigh on activity in the near term
  • says will use “full range of tools” to support economy, will expand holdings of treasury securities by $500 bln and mortgage backed securities by $200 bln in coming months
  • vote on policy action was 9 to 1, with Cleveland fed president Loretta Mester preferring a smaller interest rate cut
  • Fed announces coordinated action with bank of Canada, bank of England, bank of Japan, European central bank and Wwiss national bank
  • Fed says six global central banks have agreed to lower pricing on u.s. dollar liquidity swap arrangements by 25 bps
  • says changes to central bank swap lines will take effect week of march 16
  • Fed and other global central banks will begin offering u.s. dollar liquidity in each jurisdiction with 84-day maturity
  • Fed says it will lower the primary credit rate by 150 basis points to 0.25 percent, effective march 16
  • Fed says it supports firms that choose to use their capital and liquidity buffers to lend and undertake other supportive actions in a safe and sound manner
  • says that depository institutions may borrow from the discount window for periods as long as 90 days, prepayable and renewable by the borrower on a daily basis
  • says reducing reserve requirement ratios to zero percent effective on march 26
  • says encourages depository institutions to utilize intraday credit extended by reserve banks, on both a collateralized and uncollateralized basis
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