Daily Commentary BY THE CURVE TEAM –

US Federal Reserve Goes Big as Congress Stalls

24th of March, 2020

It has been another busy 24 hours for policy makers but it hasn’t been all smooth sailing.

Volatility has continued in spite of policy makers around the globe working overtime to put in place measures to support their respective economies. Equities were on the back foot again while bond markets have generally been firming in recent days leaving yields lower. Gold has resumed its safe haven status while the USD surge has faded as central bankers keep funds flowing.

Overnight the Federal Reserve had their ‘whatever it takes’ moment. The announced an huge list of new measures to support markets and the economy, going well beyond what we saw back in the 2008 crisis. Some measures included but not limited to:

  • Daily repos at 0%
  • Daily Quantitative Easing Purchases of $125bln this week
  • A main street business lending program to be rolled out soon
  • Corporate bond facility making loans up to 4 years
  • Expanded commercial paper funding facility
  • Widening the money market mutual fund facility
  • Establishing an asset backed loan facility

The huge announcement briefly excited markets before the euphoria faded. Not helping the situation was the fact that congress failed for the second time to approve the $2trl stimulus bill.

While central banks and governments are doing more and more to support their economies, we are unlikely to see markets calm until more is known about the true economic impact of the simultaneous crisis that are under way. We have never seen a supply, demand, credit, wealth and oil crisis all at once with a global backdrop of already record low rates and record high debt. It is a true unknown.

David Flanagan

Director - Interest Rate Markets