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Fed cuts half point in emergency move amid spreading virus

bloomberg.com

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Re: Fed cuts half point in emergency move amid spreading virus

#221

Post by news_hacker »

interlocutor wrote: post #213

This abrupt move by the Fed betrays lack of knowledge of stock market psychology. Looking at how stocks are doing today you would not think that anything of interest has happened (no pun intended). The stock market psychology works on "buy on rumor, sell on news" principle. This is the reason there was a significant rally yesterday, and stocks are in negative territory today. What the Fed should have done is give sig…

This is assuming that the fundamental trust in the market is still there though the global pandemic. It's hard to heal a deeper pessimism when it settles in, and the coronavirus has caused this, especially in the elderly.

I think the Fed understands stock market psychology pretty well.

I think they just didn't have a choice here.

Re: Fed cuts half point in emergency move amid spreading virus

#222

Post by shdh »

tlb wrote: post #171

It's well-understand how low interest rates boost the economy in the medium- and long-term. Companies deploy cheap capital to build new factories, and consumers buy more appliances, cars, and houses. What short term behavior changes do emergency rate cuts cause to boost the economy? Are there capital projects that can get started in weeks, that were previously shelved because the rates were 0.5% too high, but are now…

> Companies deploy cheap capital to build new factories

Have we actually seen investment though? Or have we seen mostly stock buybacks?

Re: Fed cuts half point in emergency move amid spreading virus

#223

Post by lottin »

gdubs wrote: post #82
atq2119 wrote: post #47

Earlier quoted context omitted.

Only because the toolset is artificially restricted for ideological reasons. Fiscal responses (having the government spend actual money, either on things like infrastructure it by just handing it out to the population, which will then largely spend that money as they see fit) rather than monetary policy responses (reduce rates and hope that people will borrow more) are known to work well in most cases. The Corona vir…

Keynes famously said you could hire people to dig ditches and it would stimulate the economy. However, if we were to take aggressive action on Climate Change, there’s a lot of potential jobs there. A massive potential stimulus. Also, you know, public funding of basic research which could explore, I don’t know, pandemic response, new therapeutics, etc. Like you said, ideological barriers are what’s keeping us stuck. B…

The problem is most governments are already highly in debt. It is not that a fiscal stimulus is a bad idea per se, but it has to start during the expansion cycle by reducing the debt, otherwise at some point so much debt becomes unmanageable.

Re: Fed cuts half point in emergency move amid spreading virus

#224

Post by JMTQp8lwXL »

mech1234 wrote: post #35

Interest rates have been on a secular decline over the course of the last century. Different economists have described this via various terms- "savings glut" is the one I like the most (even though I don't like Krugman). Right now there is so much saved cash out there looking to be lent out that any project looking for financing can find it for cheap. The Fed does not keep interest rates low in a vacuum. There is an…

> The Fed does not keep interest rates low in a vacuum. There is an auction system that determines real rates. If the Fed is not able to sell all their bonds at the target rate, they have to adjust.

To my understanding, there is a real public market, however the Fed essentially manipulates by participating to the degree necessary to achieve the target interest rate. When the overnight repo rate went up, the Fed hopped in to 'fix' the rate. You will never have enough assets to compete with the Fed's goals. They have limitless capacity to participate in the market.

Re: Fed cuts half point in emergency move amid spreading virus

#225

Post by a_tractor »

rtkwe wrote: post #154
mbesto wrote: post #110

Earlier quoted context omitted.

> For those saying the Fed is running out of ammunition, study what the Bank of Japan has done. Oh you mean the economy that has been stagnate for 20 years?

Stagnant or not the real question is what would have happened if the bank wasn't holding all those stocks? That is did buying all those stocks/ETFs successfully prop up the economy that would have otherwise gone into a recession or worse or did it cause the stagnation?

The argument could (and should more often) be made that recessions are sometimes healthy and that propping up failed or stagnant businesses or industries usually only prolongs the suffering. It also locks up resources that could be invested elsewhere in less entrenched but more promising new growth areas. So I would argue that it is likely to cause the stagnation

To use an analogy from botany, its like how certain types of plants need periods of dormancy, but its actually possible to create or install a given plant into specific environmental conditions where the inducement of dormancy is prevented, for a time... But overtime, without the time to rest and regenerate, the plant will become incredibly weak. It will stop flowering or producing delicious fruit. It will grow frail and live to only a fraction of its potential age limit. Similar to this are how efforts to reduce the spread of wildfires only ends up with a far more dangerous and uncontrollable situation down the road and the 'debt' of uncleared deadwood piles up.

Just a thought.

Re: Fed cuts half point in emergency move amid spreading virus

#226

Post by jp555 »

airstrike wrote: post #27

From what I gather after spending more time than I'm willing to admit listening to every finance talking head out there, the consensus on the street seems to be that this will result in a temporary market recovery followed by the continued deterioration of stock prices given that fiscal or monetary* policy can't really affect the real economy in the near term* i.e. if the supply chain is indeed impacted due to COVID-…

The Roaring Twenties came after the Spanish Flu... (& WW1)

;P

I jest, but I wonder about the difference between "natural" complex-systems-behavior recessions, and those that come from acute stimulus like war and pandemic.

Something like: is there a difference between people wanting to produce and consume but being "artificially" held back, versus an average lack of confidence in the markets causing slow-down?

Re: Fed cuts half point in emergency move amid spreading virus

#227

Post by friedfish »

unreal37 wrote: post #173
adrianN wrote: post #160

Earlier quoted context omitted.

GDP per capita doesn't look stagnant: https://tradingeconomics.com/japan/gdp-per-capita

Looks like the population of Japan is falling faster than the GDP of Japan. So "per capita" is kinda misleading here.

These things are coupled, if GDP/capita is going up it means individuals are producing more. If this were just declining populations then per capita measures would be flat.

Re: Fed cuts half point in emergency move amid spreading virus

#228

Post by lawrenceyan »

wpietri wrote: post #183
lawrenceyan wrote: post #135

Earlier quoted context omitted.

I'm 100% understanding of brain farts. It's just that to do so on something as fundamental and basic as monetary versus fiscal policy, to me feels like, a mistake a non-layman wouldn't make. It's not like you can chalk it up to an issue with similar spelling either. 'Monetary' and 'fiscal' are written completely differently.

I'm not quite following. Are you only expecting experts to comment here? If so, are you an expert in the frequency and type of textual errors and how that relates to expertise?

The issue is when you have what currently is the top comment for this article, written in a manner which implies that the writer knows what they are talking about (i.e. /u/airstrike using terminology like "after spending more time than I'm willing to admit listening to every finance talking head out there").

I'm calling into question /u/airstrike's legitimacy due to not being able to differentiate between monetary and fiscal policy in their explanation. This is because, you learn about what monetary and fiscal policy are very early on, like in an introductory economics course. It raises red flags when you are unable to differentiate the two. I mention the spelling of 'monetary' versus 'fiscal' and how different they are in order to argue that it's unlikely /u/airstrike made the mistake because of a grammatical error or say because they were typing too fast.

I apologize if I sound harsh here, but I think it's important that things like these are called out. While /u/airstrike might not purposely be trying to do it here in his/her comment, this is exactly the kind of thing that leads to misinformation spreading.

Re: Fed cuts half point in emergency move amid spreading virus

#229

Post by throwaway3157 »

coliveira wrote: post #202
wyxuan wrote: post #177

Earlier quoted context omitted.

Capita is decreasing thanks to demographic trends, and gdp had flat lined

The US is also moving into a demographic downturn, thanks to republican policies.

> The US is also moving into a demographic downturn, thanks to republican policies.

Please don't post partisan political comments without a source.

Edit: I appreciate the downvotes for kindly asking people to follow HackerNews' guidelines

Re: Fed cuts half point in emergency move amid spreading virus

#230

Post by RobertoG »

misja111 wrote: post #45
cm2187 wrote: post #29

Earlier quoted context omitted.

The European experience has shown that negative rates aren't really working, other than killing the local banking system.

Well that's not what the former ECB chairman Mario Draghi thought about it. According to him they were a success .. See e.g. http://www.ekathimerini.com/245837/article/ekathimerini/busi... But even mr. Draghi might agree that right now the ECB is pretty powerless, given that it's rates are already below zero.

That's because it's not a monetary policy problem, but a fiscal policy problem.

If you insist in fixing your home with your car jack, don't complain about the results.

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