The Federal Reserve announced Thursday a new program to provide up to $1.5 trillion in short-term loans to support financial market liquidity. Stocks initially traded higher on Friday following the news, but experts are mixed on whether or not the Fed is doing enough.
Trump Lashes Out
The Fed critiques started at the top, with President Donald Trump once again bashing the Fed for failing to cut interest rates further.
“The Federal Reserve must FINALLY lower the Fed Rate to something comparable to their competitor Central Banks,” Trump tweeted. “Jay Powell and group are putting us at a decided economic & physiological disadvantage. Should never have been this way. Also, STIMULATE!”
Trump has been a fierce critic of Powell and the Fed ever since Trump nominated Powell for the position back in November 2017. In addition to the $1.5 trillion in liquidity announced on Thursday, the Federal Reserve cut interest rates by 0.5% earlier this month, its largest rate cut since the financial crisis.
Liquidity Vs Rate Cuts
In an op-ed for The Wall Street Journal earlier this week, John Greenwood, chief economist at Invesco, and Steve Hanke, professor of applied economics at the Johns Hopkins University, said the U.S. economy was perfectly healthy prior to the outbreak. Therefore, it needs liquidity much more than it needs stimulus via rate cuts.
“The Fed needs to supply liquidity to deal with the panic—whether by quantitative-easing purchases of long bonds, by Treasury bill purchases, by repos or, most important, by increasing the amounts of U.S. dollar swaps available to the central banks of Japan, China, South Korea, Taiwan and Hong Kong,” Hanke and Greenwood wrote.
Ebrahim Rahbari, chief currency strategist for Citi, said the $1.5 trillion in liquidity is not enough: “The Fed is likely to do more soon, including cutting rates to likely zero."
Live To Fight Another Day
Peter Boockvar, chief investment officer at Bleakley Advisory Group, told CNBC that getting through the next six weeks until the end of flu season could make a huge difference in allowing the economy and the healthcare system prepare for what could come next year.
“I don’t know what kind of damage is going to be done over the next six weeks. We just need to get through the next six weeks any which way,” Boockvar said.
TD Ameritrade chief strategist JJ Kinahan told Benzinga the Fed’s actions on Thursday will make a meaningful difference in the market, but maybe not right away.
“Over time it will help. There’s no doubt about it. When you’re in markets like this, you are playing the duration game. Just live to fight another day,” Kinahan said.
The SPDR S&P 500 ETF Trust (NYSE: SPY) traded higher by 2.2% on Friday following the Federal Reserve’s actions, so the stimulus may at least be giving investors a breather to reassess the situation. Maintaining liquidity in the credit markets is key to avoiding all-out panic that could cause major damage to the equity markets and the global economy.
Do you agree with this take? Email firstname.lastname@example.org with your thoughts.