Unexpected Fed Rate Cut Can’t Stop Stock Market Losses
In a move that hasn’t been made since the financial crisis, the Federal Reserve this morning announced that it was cutting its target federal funds rate by 50 basis points, to 1 to 1.25%. The move came just two weeks before the Federal Open Market Committee was scheduled to meet again, at which the Fed was expected to cut rates. In fact, markets are generally expecting three to four rate cuts this year. Now that the Fed has announced this out-of-cycle rate cut, the first since October 2008, everyone is wondering whether the Fed will continue to cut rates at its March meeting.
The timing of the cut was a curious one, as yesterday saw the Dow Jones’ largest one-day point gain ever. It looked as though stock markets were starting to show signs of stability after last week’s bloodbath, so why would the Fed make an emergency cut now?
There was undoubtedly pressure on the Fed from President Trump, who has long urged the Fed to push interest rates lower than they are now. And with Australia having made its own emergency cut earlier today, to a record low of 0.5%, the pressure on the Fed was piling up.
The Fed made its announcement shortly after markets opened for trading for the day, in what was clearly intended to be an announcement to boost stock markets. Yet despite an initial boost in early trading, that rate cut couldn’t carry markets, with the Dow Jones down 300 points on the day at the time of publishing.
Paradoxically, rather than strengthening investors’ confidence in the economy, the rate cut may have signaled to investors that the economy is so weak that it desperately needs further injections of easy money in order to keep things going. And that’s why markets are doing so poorly today, because investors see the parallels between today’s rate cut and the emergency rate cuts in 2008, and they realize that we’re facing another 2008-style financial crisis.
If you’re still heavily invested in stocks, what are you waiting for? The time to protect your portfolio is now. If you haven’t already invested in gold and silver to hedge against the coming crisis, time is running out. Act now to protect your retirement savings before it’s too late.