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Unprecedented Monetary Stimulus To Get In Front Of The Coronavirus

Daniel Laboe

The Federal Reserve cut its benchmark interest rate by 50 basis points Tuesday morning. This was an unprecedented move to curb the fear-driven markets that we experienced last week.

This is an extremely dovish move against the Feds dual mandate: Control inflation and maximize employment. Both of these mandates have already been accomplished with unemployment at a half-century low, and inflation under control.

The Fed’s 50 point cut hasn’t been able to stimulate a market rally today with stocks trading down since the announcement.

Banks are pulling the markets down even further with this cut having an obvious impact on the sector. Bank of America BAC is down over 5%, Wells Fargo WFC has seen a 4.3% decline, and JP Morgan Chase JPM lost over 3.5% today. All lagging the broader market.

This 50 basis point substantially reduced the Feds ammunition to fight a more comprehensive economic downturn. The coronavirus is accelerating abroad, but its full impact may not be realized for another quarter.

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