Fed Takes New Steps To Combat Crisis

Monday, March 23, 2020

Markets have been on a wild ride already this morning in pre-market activity, swinging more than 1000 points on the Dow from deep in the red (following Friday’s -4.5% move) to up around 700 points an hour ahead of the opening bell. An announcement from the Federal Reserve that it will continue to buy Treasury bills and mortgage-back securities “in the amounts needed,” meaning, essentially, “the sky’s the limit.”

These are the times when liquidation is going full-throttle. Normally, when we see things like equities trading down we see bonds go up, and vice versa. But the need to get into cash resources to deal with our myriad problems — coronavirus spread now infecting more than 35K Americans, subsequent shut-in policies and the decimation of entire sectors of our economy, which may lead to the largest spike in unemployment in our nation’s history — is carrying the moment. And the Fed swooping in yet again with another “outside the box” idea of indefinitely collecting municipal and corporate bonds, etc. is giving equity traders hope at this hour.

A failure to pass legislation to facilitate a bailout in the Senate — the vote was a 47-47 tie, with several senators under quarantine on coronavirus concerns — initially brought some gloomy attitudes to early-morning trading. The Fed’s new actions has brought back some sunnier outlooks, though futures have dialed back a bit from their peaks earlier this hour.

But most folks directly involved with the passage of a congressional bailout are clear: there needs to be a bill passed today. Whether the two political sides — which have continued to operate among the most uncooperative lines in this nation’s history — can come together on an agreeable balance between financially backstopping entire industries and assisting working individuals and their families with the vast challenges currently affecting them or expected to in the near future. There is agreement on many aspects of the bill; hopefully this will merely be a matter of fine-tuning solutions.

As far as the progression of the COVID-19 virus, stay-at-home orders in several states hardest hit by the contagion hope to stem the tide of infections, which may otherwise create a horrific dilemma faced in countries like Italy and Spain, where healthcare services have been parsed out due to lack of hospital beds, ventilators and professional staff. The U.S. was late to arrive at understanding the urgency of this crisis, though fortunately we see a far smaller percentage of lethal cases of coronavirus at this stage.

While no one believes we have seen the worst of this crisis, the positive sentiment is substantiated. Sacrifices across the board has put the U.S. on something resembling “war-time footing,” and should these efforts be successfully sustained, we might expect to see some positive developments going forward.

Mark Vickery
Senior Editor

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