Gloves Off

They stack the odds 'til we take to the street
For the kill with the skill to survive
--Survivor

The monetary policy gloves are officially off. Last night, the Federal Reserve and other central banks announced extreme measures aimed at combating economic and financial consequences of coronavirus countermeasures worldwide. Three separate announcements were released.

In the first announcement, the FOMC preempted policy actions anticipated at its previously scheduled mid-week meeting by dropping the fed funds rate 100 bips to the 0 - 0.25% range (essentially zero). It also announced programs of additional asset purchases by $700 billion (a.k.a. 'quantitative easing') and further expansion of overnight repo and money market activities.

The second announcement signaled Federal Reserve intentions to keep credit systems functioning under conditions of curtailed business activity, It encouraged financial institutions to tap the Fed's discount window for credit to meet demands for households and businesses. To encourage activity, the primary credit rate was dropped 150 basis pts to .25 percent. It also reduced bank reserve requirement ratios to zero percent (!) to encourage more bank lending within the regulatory framework.

The third announcement concerned coordinated action among central banks worldwide to improve US dollar liquidity via swap arrangements. This addresses concerns arising last week that USD were increasingly hard to find for trades among institutions.

All of these policies are clearly inflationary. I would expect even more extreme measures should the public health measures persist or escalate.

Markets not impressed, btw. US stock futures traded limit down last night and circuit breakers went off with the opening bell this am with Dow off nearly 10%. Many stocks not even on the board when breakers kicked in.