‘Emergency’ cuts, not all that rare

The FED acted yesterday to make a 50 basis point (0.5%) cut in interest rates to a range of 1-1.25%.  This is unusual but not really rare — in the past 25 years this has been done 9 times including the most recent one.  Bloomberg reports the history.  The vote was unanimous; this isn’t always the case, with two of the three 2008 intermeeting rate cuts running up to the Great Recession facing dissension.  Since 1998 they’ve always been in a downward direction and usually gathered around moments of significant stress in stock markets.

  • October 15, 1998 — the LTCM crisis
  • Jan. 3 and April 18, 2001 — tech bubble pop and ensuing recession
  • Sept. 17, 2001 — after 9/11
  • August 17, 2007 — after failing to act at a meeting 10 days earlier and the market melting down in the middle of the subprime mortgage bank crisis
  • Jan. 22, 2008 — large stock market selloff
  • March 16, 2008 — Bear Stearns (75 bps cut) — 2 dissenting votes
  • October 8, 2008 — coinciding with UK bailout of its banks

At a press conference chair Jay Powell read his opening remarks, which included

The virus and the measures that are being taken to contain it will surely weigh on economic activity, both here and abroad, for some time. We are beginning to see the effects on the tourism and travel industries, and we are hearing concerns from industries that rely on global supply chains. The magnitude and persistence of the overall effects on the economy, however, remain highly uncertain, and the situation remains a fluid one.

Against this background, the Committee judged that the risks to the U.S. outlook have changed materially. In response, we have eased the stance of monetary policy to provide some more support to the economy.

Markets slumped immediately afterwards, leading many to believe there was an expectation of a 75 bp cut; St. Louis Fed president James Bullard threw cold water on that idea today.  “I wouldn’t want to put a tremendous amount of focus on this March meeting. There won’t be a lot of new information there that we don’t have today,” he said.

Much was made over the weekend of the G-7 meeting and statement that was to come out Monday, though it ended up long on words and short on actions.  The ECB has come under fresh pressure to act, though their rates are already negative.

The actions taken, however, have done little to calm markets with the Fed unable to fill all demand for overnight repo borrowing this morning.

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