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Federal Reserve slashes interest rates to zero

washingtonpost.com

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Re: Federal Reserve slashes interest rates to zero

#71

Post by dcftoapv »

csense wrote: post #68
aazaa wrote: post #15

The Fed can, and will do much, much more. The signal here should be read as "whatever it takes to avoid a depression." Among other steps, this is likely to mean: - Negative-yielding long-term treasuries - Direct purchase of stocks or ETFs, which would require congressional approval. Expect the discussions to start soon. The steps already taken and the ones to be taken will create financial manipulation on a scale nev…

Does anyone here understand how negative interest rates would work? Why would anyone buy a negative-rate treasury bond instead of just hanging on to their cash?

We used to think that rates couldn't go negative for exactly the reason you just described.

Turns out that assumption was wrong for a few reasons a) holding onto money is expensive b) in many cases banks have incentive to hold government securities c) sometimes they are outright required to hold government securities d) this is related to (a), but there is risk in holding onto cash where government debt is in many cases perceived as risk-free.

The thought today is that rates can go only slightly negative for short periods of time, which we will continue to believe until some government tries to push the lower bound again.

Re: Federal Reserve slashes interest rates to zero

#72

Post by dnautics »

dcftoapv wrote: post #25
dharma1 wrote: post #22

Earlier quoted context omitted.

Direct purchases of shares will do little to alleviate this crisis. The treasury purchases will fund the government to help industries which are badly affected from going under, companies with cash flow issues, and employees who need to take time off - which they already announced on Friday. I think $500b will be the beginning, will likely be much more needed

Asset purchases will help to stabilize markets - The fed became a huge driver of liquidity from from 2016-2018 - There was a noticeable increase in market toxicity when they started letting assets roll of their balance sheet in 2018 I'm more optimistic about the impacts of their role as a liquidity provider than I am about their role holding down the effective overnight borrowing rate.

Are you optimistic about the wealth transfer implications of their activity?

Re: Federal Reserve slashes interest rates to zero

#73

Post by dlp211 »

jaggederest wrote: post #13
xxpor wrote: post #7

Earlier quoted context omitted.

>but you’ll never get to 0% as a consumer. Unless we see negative fed rates. Not that I think going so negative we see consumer level 0% mortgages is likely.

Ironically, much of the tax advantage of owning vs renting is embodied in the mortgage interest tax deduction. If there were no interest, obviously it would be a good deal, but would not have the additional benefit of tax avoidance that it does at present.

Much of the tax avoidance from primary residence property has been removed from the tax code already due to the TCJA. Not all of it, but most of it. It also makes no sense to have a mortgage for the tax break. Rentals have depreciation and the interest remains deductible as an expense on them there, so that isn't really an issue.

Re: Federal Reserve slashes interest rates to zero

#74

Post by cle »

dcftoapv wrote: post #57
onlyrealcuzzo wrote: post #51

Earlier quoted context omitted.

A lot of people seem to think the Fed's job evolved to include preventing recessions. I guess the Fed isn't accountable to the US public, so their job can be whatever they want it to be?

The feds mandate is to maximize employment, stabilize prices, and moderate long-term interest rates. A big part of that is trying to avoid the 'bust' part of a boom-bust cycle. As evidenced by your post, the fed should not be accountable to the public because the public cannot be expected to spend anytime trying to understand what they do and their methods of action.

Any body holding significant power is at some level accountable to the public, regardless of laws or regulations or how little the public may understand. If the Fed can’t make the case to most citizens that it should exist and retain its power, then it is doomed, and no philosophical arguments could change that.

Re: Federal Reserve slashes interest rates to zero

#75

Post by dcftoapv »

imglorp wrote: post #54
michaelyoshika wrote: post #29

Earlier quoted context omitted.

Don't know why this is downvoted. Cutting interest only benefits the wall street in the next couple months. Basically this admin only knows two things: 1, Cut interest rate 2, Cut tax And it doesn't care if the world explodes after they step down.

Most republican administrations have displayed that "get mine and get out" behavior--causing recessions--since Teddy Roosevelt.

Obama's admin let one of the world's foremost financial institutions fail and caused a mass market panic / giant economic setback. Their reasoning was entirely political and caused millions of people to lose their jobs. I'm independent, but claiming that Republicans cause recessions is pretty ironic considering the economic damage the last Democratic admin did.

Re: Federal Reserve slashes interest rates to zero

#76

Post by auntienomen »

csense wrote: post #68
aazaa wrote: post #15

The Fed can, and will do much, much more. The signal here should be read as "whatever it takes to avoid a depression." Among other steps, this is likely to mean: - Negative-yielding long-term treasuries - Direct purchase of stocks or ETFs, which would require congressional approval. Expect the discussions to start soon. The steps already taken and the ones to be taken will create financial manipulation on a scale nev…

Does anyone here understand how negative interest rates would work? Why would anyone buy a negative-rate treasury bond instead of just hanging on to their cash?

If you have a large amount of money (e.g., you are a mutual fund), banks will charge you to hold it.

Re: Federal Reserve slashes interest rates to zero

#77

Post by pishpash »

Anon84 wrote: post #67
aazaa wrote: post #15

The Fed can, and will do much, much more. The signal here should be read as "whatever it takes to avoid a depression." Among other steps, this is likely to mean: - Negative-yielding long-term treasuries - Direct purchase of stocks or ETFs, which would require congressional approval. Expect the discussions to start soon. The steps already taken and the ones to be taken will create financial manipulation on a scale nev…

What does game over mean in this context?

Total financial collapse, asset holders wiped out.

Re: Federal Reserve slashes interest rates to zero

#78

Post by csense »

dcftoapv wrote: post #71
csense wrote: post #68

Earlier quoted context omitted.

Does anyone here understand how negative interest rates would work? Why would anyone buy a negative-rate treasury bond instead of just hanging on to their cash?

We used to think that rates couldn't go negative for exactly the reason you just described. Turns out that assumption was wrong for a few reasons a) holding onto money is expensive b) in many cases banks have incentive to hold government securities c) sometimes they are outright required to hold government securities d) this is related to (a), but there is risk in holding onto cash where government debt is in many ca…

So people are willing to accept small negative rates if it would be less than the operational costs of shipping enormous truckloads of bills around, storing them, securing them, and insuring them against theft / fire? Is that's what's going on here?

Re: Federal Reserve slashes interest rates to zero

#79

Post by taiwanboy »

inferiorhuman wrote: post #43
aazaa wrote: post #15

The Fed can, and will do much, much more. The signal here should be read as "whatever it takes to avoid a depression." Among other steps, this is likely to mean: - Negative-yielding long-term treasuries - Direct purchase of stocks or ETFs, which would require congressional approval. Expect the discussions to start soon. The steps already taken and the ones to be taken will create financial manipulation on a scale nev…

If the Fed loses this fight, game over. This isn't the Fed's fight. Monetary policy won't fix this.

Game over is an exaggeration. There’s 3.4 trillion sideline cash. China’s economy collapsed 80-90% in the last month and will take months to recover, on top of exploding debts. Japan and Germany was in recession before coronavirus hit.

On the other hand, US was growing a steady 2% and had record low unemployment before this. If US can flatten the curve, with only ~3000 cases thus far, US will recover quickly and come out way ahead. And the sideline cash will rush into US

Re: Federal Reserve slashes interest rates to zero

#80

Post by blihp »

mcphilip wrote: post #36
aazaa wrote: post #15

The Fed can, and will do much, much more. The signal here should be read as "whatever it takes to avoid a depression." Among other steps, this is likely to mean: - Negative-yielding long-term treasuries - Direct purchase of stocks or ETFs, which would require congressional approval. Expect the discussions to start soon. The steps already taken and the ones to be taken will create financial manipulation on a scale nev…

Interesting that S&P futures have fallen 3% as of 5:00pm in Asia. Are markets interpreting this less as the Fed signaling it will do whatever it takes and more as the Fed is panicked and the financial system is under a huge amount of pressure behind the scenes? Edit: S&P futures limit down at 5:15.

A significant fraction of the economies of the world are being shut down, which is what needs to happen short term.[1] Interest rate cuts and liquidity injections won't do much of anything about the fact that, other than mostly small ticket essentials, no one is buying, no one is selling and no one is producing much right now. At the very least, this quarter is shot and markets are just trying to price in what stalling out the economy is going to mean. The problem is, no one knows how long this will take or how quickly activity will (hopefully) recover when it's all over.

[1] If you disagree, picture this scenario: everyone went about their business as usual, vastly larger numbers of cases are reported with corresponding deaths, healthcare providers are hopelessly overwhelmed, the public starts to panic... and economies are still shutting down but due to fear.

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