Wall Street Reacts to Huge Fed Cut With Calls for More Stimulus

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The Federal Reserve’s shock interest-rate cut and bond-buying program rippled through global markets on Monday, with S&P 500 Index futures falling by the limit and Treasury yields moving sharply lower at the start of what promises to be another volatile week.

Early reactions on Wall Street to the Fed’s moves were mixed. Some said the measures will help stabilize jittery financial markets, while others warned that the central bank’s emergency actions risked adding to investor panic. One refrain from across the spectrum: global policy makers will have to roll out more monetary and fiscal stimulus to counter the economic fallout of the worsening coronavirus pandemic.

Lack of Calm

Max Gokhman, the head of asset allocation for Pacific Life Fund Advisors:

“This is the sort of opening of the floodgates we expected and we will (and will need) to have even more but I’m not sure if not waiting a few days for the official meeting was the right call. It’s important to appear prompt but also orderly.

“One of the big themes with Covid overall has been a lack of calm, coordinated, and thoughtful response from G7 leaders or even just Washington. To the folks panicking it appears as thought the people in charge are either doing too little, don’t fully grasp the issue, or are just throwing whatever they have lying around at the problem to see if it helps.”

Forward Guidance

Roberto Perli, partner at Cornerstone Macro LLC:

“Overall, I believe the package is robust, but it also left something to be desired in some areas, like the unclear forward guidance and the reliance on the heavily stigmatized discount window. Nonetheless, Powell was clear that the Fed reserves the right to use other tools if appropriate.”

Largely Inconsequential

Peter Mallouk, president of Creative Planning, which manages about $45 billion:

“It’s largely inconsequential. The bottom line is this is a health issue. People are going to be surprised how little the economic incentives and plans are going to help until we start to see a change in the infection and death rate and I would take a 5% improvement in the war against the coronavirus over a 100% move in terms of economic incentives and initiatives.”

Blew It

Michael O’Rourke, chief market strategist at JonesTrading:

“They blew it. The Fed panicked and the market is spooked. The S&P 500 registered all time highs less than a month ago and the Fed has expended all its conventional and unconventional tools. The key takeaway will be that they have truly expended all of their ammunition and this is the action of a central bank that is scared.”

Market Plumbing

Kim Forrest, chief investment officer at Bokeh Capital Partners:

“The biggest problem for them that they can solve is not necessarily the economy but the functioning of the markets. To me that was the biggest news — they’re committed to solving those problems.”

No Choice

Jeff Mills, chief investment officer of Bryn Mawr Trust:

“They had no choice, but it won’t be enough in the grand scheme of things. We need large fiscal programs, which based on the recent communication from the Treasury secretary it seems clear we will be getting.

“If we get the fiscal stimulus side of the equation, the eventual recovery will likely be more robust than it would be otherwise.”

Fed Leading

Alicia Levine, chief strategist, BNY Mellon Investment Management:

“The Fed is leading global central banks. The mixture of policy action exceeds market expectations and, importantly, will help corporate credit markets as it unleashes a flood of liquidity. The disquieting message from last week’s market moves in the credit and Treasury markets was the contraction of liquidity and this action should help calm that dislocation. Expect the Treasury yield curve to steepen on this action.”

Pulling All the Stops

Joachim Fels, global economic adviser at Pacific Investment Management Co.:

“A global recession in response to a combination of a supply disruptions and a sudden stop of demand for (mostly) services appears to be a foregone conclusion.

“The Fed’s actions will help to restore an orderly functioning of the very core of the U.S. financial markets: the Treasury market and the U.S. mortgage market.

“All said, policy makers including the Fed are in the process of pulling all the stops to mitigate the severe economic and financial disruptions caused by the most severe global health crisis in more than a century. More will be needed and will likely be forthcoming over the next few weeks and months.”

Global Funding Squeeze

Ian Lyngen, head of U.S. Rates strategy at BMO Capital Markets:

“The coordinated action between the Fed/BoE/BoJ/ECB/SNB/Bank of Canada to lower the price on the central bank swap lines should help ease overseas funding stress by both reducing the cost of dollars for foreign banks, but also by adding the 84-day maturity option — in addition to the 1-week currently. This should help reduce the probability of global funding squeeze — whether it will be enough will be determined in the coming days.”

Targeted Lending

Krishna Guha, head of central bank strategy at Evercore ISI:

“Equity market futures continued to tumble following the announcement as he spoke. This troubling reaction likely reflects some combination of buy the rumor/sell the news from Friday, concern that the Fed has fired its bazooka and fiscal needs to step up too if this is to work, and missing elements on the liquidity/credit front.

“The Fed cannot do a lot about the first two but it can and should address the third. In our view the absence of TAF cash auctions and emergency 13(3) lending programs to shore up the credit markets starting with a CPFF backstop for commercial paper leaves the powerful package incomplete.”

— With assistance by Joanna Ossinger, and Vildana Hajric

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