Let's try to understand and analyze the monetary situation in the US prior to the emergency interest rates cut by the US Fed.
As usual, we will look at the 4 US rates.
http://sg-stock.blogspot.com/2020/01/what-will-fed-do-for-upcoming-meeting.html (Previous post)
Iorr: 1.6% prior to the cut of 0.5% to 1.1% (Mar 2020).
The previous max limit was 1.75%. The current max limit is 1.25% after the cut.
The Iorr increased to 1.6% from 1.55% prior to the cut and it was within the limit set by the Fed.
Effr: 1.59% (increased from 1.55%). It is within the range of 1.5% to 1.75% set by the Fed.
Ioer: 1.6% prior to the cut of 0.5% to 1.1% (Mar 2020).
The Iorr increased to 1.6% from 1.55% prior to the cut and it was within the limit set by the Fed (1.5% to 1.75%).
On RRP: 1.5%, Min limit is 1.5% as set by the Fed.
Effr: 1.59% (prior to the emergency cut)
Ioer: 1.6% (prior to the emergency cut)
The Effr-Ioer spread was negligible which showed that there was no monetary tightening the US financial and monetary system and all the 4 rates were within the 1.5% to 1.75% set by the Fed.
Therefore, there is no valid reason for the US Fed to do emergency interest rates cut prior to the March 17-18 FED meeting.
What's the rationale behind this emergency cut?
Well, the only rationale left will be this is a pre-emptive move for something worse to come.
What's the biggest risk now? Covid-19 outbreak!
This emergency cut is just telling us that the covid-19 outbreak in the US is worse than what it seems and the US Fed can no longer wait until the March meeting to do the cut. We've been suspecting and doubting the real covid-19 situation in the US.
http://sg-stock.blogspot.com/2020/03/why-are-global-scientists-claiming-now.html
http://sg-stock.blogspot.com/2020/03/signs-that-us-cannot-contain-covid-19.html
The US stock markets fell heavily because of this emergency cut. Consequently, we expect the US infection rate and death toll to increase significantly after the emergency cut because this is what the FED is insinuating.
The US death toll has increased to 9 as we speak. The fatality rate is 7.4% (9/122) in the US which is much higher than in China (3.7%).
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3 comments:
The world is facing a biological crisis and not a financial crisis. Therefore, using a monetary policy won't resolve the virus outbreak.
The FED is definitely wrong this time.
What the US government should do instead of using monetary policy.
1. Increase covid-19 testing.
2. Improve containment measure.
3. Improve medical protocol.
4. Create a vaccine (this will take time).
Thus, the US government should do no.1 to 3 first instead of cutting rates now.
The 2020 US flu infected more than 26m people and killed more than 16,000 citizens but the US FED didn't do any emergency cut in interest rate.
This covid-19 infected only 122 and killed 9 people in the US and the US FED panicked.
Does this make any sense at all?
I can only say that the US FED is privy to the real medical statistics that we are not entitled to and this prompts the FED to do the emergency cut.
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