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Markets and economy – Daily economic commentary

Daily economic commentary

The Fed Goes All in to Mitigate Covid-19’s Economic Impact

Sunday evening's announcement by the Federal Reserve of a 100 basis point cut in the target federal funds rate range (to the zero bound), $700 billion in purchases of Treasury and mortgage-backed securities, easing of borrowing standards at the Fed's discount window, cutting reserve requirement for banks to zero, and enhancing worldwide dollar liquidity through actions coordinated with the Bank of Canada, the Bank of England, the European Central Bank, the Bank of Japan, and the Swiss National Bank, indicates that the Fed has gone all in in an effort to mitigate the negative impacts on the economy and the functioning of financial markets in response to the COVID-19 pandemic. 

Daily economic commentary

A blow-out jobs report for February

Nonfarm payroll gains of 273,000 for February along with substantial upward revisions to the two prior months suggest that the U.S. economy had significant momentum before the impacts of the COVID-19 virus. This data came from a survey in the middle of February, however, so it says nothing about what will occur in coming months, only that we are starting from a much stronger place. The weekly jobless claims – which are probably the best nearly real-time indicator of the labor market – also show that firms have not yet responded to the coronavirus, with data through the end of February. 

Daily economic commentary

Fed reacts to concerns from the coronavirus

This morning, the Federal Reserve cut the federal funds rate (its short-term policy rate) by a half percentage point. Although the exact date was unknown, Nationwide Economics expected a 50 bps rate cut before the FOMC meeting on March 17-18 in response to the increasing threat to the economy and financial market conditions presented by the coronavirus COVID-19. The Fed’s language announcing the cut suggests that it could cut by another 25 bps (or even 50 bps) by the June FOMC meeting, but this will depend upon how the economy and financial markets move over the next few months – which will be strongly influenced by how the COVID-19 virus develops. This is a very fluid situation.