Emergency rate cut big action!The Fed cut interest rates by 50 basis points on March 3, lowering the federal funds target rate to 1.00%~1.At the same time, the interest rate on excess Reserves (IORE) was cut by 50 basis points to 1.1%。The Fed statement said the fundamentals of the US economy remained strong, but the virus posed ongoing risks to economic activity。Wang Youxin and Zhao Xueqing, researchers at the Research Institute of the Bank of China, pointed out that the impact of the novel coronavirus epidemic has made the US economy worse;With the weakening of external constraints, China's monetary policy may shift from prudent to loose;The world will start a new round of interest rate cuts。
The Fed's rate cut was in line with expectations, but it was a departure from previous actions。One is earlier, two weeks before the rate-setting meeting, which is a surprise move.The second is bigger, not the small adjustments of the past 25 basis points, but the big leap of 50 basis points。Such an emergency interest rate cut is rare in the history of the Federal Reserve, comparable to the policy operations at the outbreak of the September 11, 2001, and the subprime crisis in 2008, which to some extent suggests the potential risks faced by the United States and the enormous pressure faced by the Federal Reserve。
The pandemic shock has prompted emergency action, but the Fed's policies have generally had limited effect。The US interest rate cut was forced by circumstances。
First, the shock of the COVID-19 pandemic has turned US stocks from boom to bust。Since this round of international financial crisis, QE and other unconventional monetary policies have been introduced, and global capital has pushed up US stocks to the longest bull market record in history。On the basis of the weak entity, investors "beat the drum to pass flowers", the market sentiment is already sensitive and fragile, and the risk of the epidemic has reduced the outlook of corporate earnings and economic fundamentals, resulting in violent shocks in the US stock market。Last week, the global and US stock markets experienced the worst week since 2008, the three major US stock indexes fell more than 10%, the 10-year US Treasury yield broke 1 for the first time in history, the market panic, the timely start of interest rate cuts became necessary to avoid the continuation of the cliff fall and another financial crisis。
Second, the spread of the virus has made the US economy worse。In addition to consumption, the performance of manufacturing and investment data continues to be sluggish, the US bond interest rate has inverted several times, and the global spread of the novel coronavirus epidemic will exacerbate the downside risk of the US economy, severely hitting the retail, catering, logistics, film and television and transportation industries in the United States, while facing the external impact of slowing global growth and supply disruptions in the value chain。
In addition, the epidemic and the election situation superimposed on each other, further stimulating the Federal Reserve to cut interest rates。On the one hand, Trump has repeatedly blasted and pressured the Federal Reserve to cut interest rates, and even after this round of interest rate cuts, he still called for "easing and interest rate cuts to come more violently."。On the other hand, on the day of this round of rate cuts, 14 states in the United States held Democratic presidential primaries (Super Tuesday).。Therefore, faced with political pressure and political uncertainty, the Fed also has an incentive to cut interest rates early。
At present, it seems that this round of emergency interest rate cuts by the Federal Reserve have a certain support effect on the economy and finance, but the overall effect is limited。The US economy has long-term problems，Not a short-term financial crisis，Slashing interest rates is not the answer;In addition，Us stocks and entities have long diverged，There was always the inevitability of adjustment，Emergency rate cuts bring liquidity，But it makes the market even more dangerous.，Heighten panic，This is the main reason why US stocks rose and then fell after the Fed announced the rate cut。
Many central banks around the world followed the bottom, and the international financial market ushered in a volatile period again。Recently, as the COVID-19 epidemic has escalated overseas and the number of confirmed cases has climbed in many countries, international organizations have lowered their global growth forecasts。The OECD's forecast for global economic growth in 2020 is up from 2.9% down to 2.5%, or even negative growth in the first quarter;If the epidemic spreads further in the Asia-Pacific, Europe and North America, global economic growth will slow to 1.5%, half of what was predicted before the outbreak。Given the impact on economic confidence, financial markets, supply chains and more, major global tourist destinations, commodity exporters and countries with high trade dependence will all be affected。
Australia's central bank cut interest rates by 25 basis points on March 3, firing the first shot at global central banks to maintain stability, and Malaysia's central bank cut its benchmark interest rate to the lowest level since 2010。Subsequently, the Federal Reserve slashed interest rates by 50 basis points, and regulatory authorities in Hong Kong, Saudi Arabia, the United Arab Emirates and other places followed suit, opening a new round of emergency interest rate cuts around the world under the threat of the new coronavirus epidemic。
Although low or even negative interest rates have long-term negative effects and are not a panacea, they are indeed a choice to maintain stability in the short term, and they are also measures to complement fiscal and public health policies。Of course, after a round of unconventional operations, the current global monetary policy space is already limited, for example, the European Central Bank policy rate is deep in the record low of minus zero.The future direction of monetary policy will also depend on the evolution and control of the epidemic。
In the foreseeable period, the weakening of the global economy, the monetary policy into very low interest rates or even negative interest rates, will increase the market risk aversion, the US dollar index, gold, stock markets, commodities, bonds and other financial market prices will be violently volatile。Companies and investors need to pay more attention to financial market volatility and adopt more financial derivatives and insurance products to avoid risks。
With the weakening of external constraints, China's monetary policy may move from prudent to loose。From the domestic point of view, the pressure on economic growth has increased, the PMI index has fallen to a historic low, in the context of overseas interest rate cuts, there is no need to consider the issue of exchange rate depreciation and cross-border capital flow, and the focus of monetary policy operations can pay more attention to domestic economic growth。From an international perspective, in the face of global public health problems, central banks need to work together to deal with them, jointly assume international responsibilities, and stabilize the global financial market。From the point of view of the time, March can be considered to cut the RRR first, and further cut interest rates in April。Due to the impact of shutdown and production, the current domestic price index is relatively high, and the monetary policy does not have the conditions for large-scale easing. We can release liquidity to the market, reduce financing costs, and support enterprises to resume work and production by increasing comprehensive or targeted RRR cuts and guiding LPR interest rates downward。In April, with the recovery of market supply and stable prices, further interest rate cuts can be considered to stimulate economic growth。