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Market slump continues despite large Fed rate cut

Jacob Owens March 16, 2020

NEW YORK – Despite a historic Federal Reserve cut of the nation’s benchmark interest rate to nearly zero, the U.S. stock market continued in its coronavirus-spurred slump Monday. On Sunday, the Federal Open Market Committee ...

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The S&P 500 fell nearly 12% on Monday, despite a large rate cut by the Federal Reserve as the coronavrius pandemic grew to more than 4,100 cases in the U.S. | CHART COURTESY OF GOOGLE[/caption] NEW YORK – Despite a historic Federal Reserve cut of the nation’s benchmark interest rate to nearly zero, the U.S. stock market continued in its coronavirus-spurred slump Monday. On Sunday, the Federal Open Market Committee voted to lower the short-term interest rate by a full percentage point to a range of zero to 0.25%. That decision came less than two weeks after the Fed made a 0.5% cut to the benchmark rate as the coronavirus appeared to spread outside of China. With more than 4,100 cases in the U.S. today, monetary leaders are seeking to combat the widespread economic impact that coronavirus has wrought. The pandemic has created both a supply-side shock, as factories and supply chains shut down, and a demand-side shock, as citizens are encouraged to isolate themselves and not patronize many of the service businesses they normally would. The cut by the 10-member FOMC on Sunday was not unanimous, as Federal Reserve Bank of Cleveland President and CEO Loretta J. Mester voted against it, preferring to set a range of 0.5% to 0.75%. The committee decided to the cancel its scheduled March 17-18 meeting. “The effects of the coronavirus will weigh on economic activity in the near term and pose risks to the economic outlook,” the Fed wrote in declaring its rate cut. “The committee expects to maintain this target range until it is confident that the economy has weathered recent events and is on track to achieve its maximum employment and price stability goals.” In addition to the steepest one-time cut since the 2008 financial crisis, the Fed announced an investment of $700 billion in Treasury or mortgage-backed securities as the Fed looks to inject some life into the economic markets. Investors weren’t swayed, with trading halted less than a minute into Monday’s market after the S&P 500 fell 8% triggering a “circuit breaker” that stops trading for 15 minutes. After it resumed, the markets weren’t encouraged as manufacturing and investment stats in China were down considerably last month from estimates. The S&P 500 ended Monday down more than 12% as the bear market worsened. Delaware’s publicly traded companies took a hit in the falling market, with financial stocks like The Bancorp (30%), WSFS (19%) and Sallie Mae (17%) leading those losses. A 4 p.m. press conference from President Donald Trump, who warned that the COVID-19 pandemic may last as long as August, will likely do little to settle jitters in the market, with futures trading toward floor levels Monday night. Fed Chairman Jerome Powell may be running out of tools to deploy in the fight to bolster the economy, telling reporters Sunday night that he didn’t see negative interest rates “to be an appropriate policy response here in the United States.” He argued that the Fed’s ability to pump dollars into the securities market would help bolster the stock market and support the paychecks for Main Street America. He conceded that the Fed didn’t have tools to directly aid households though, saying that ability largely fell to other federal and state agencies. “It's true we don't have the tools to reach individuals and particularly small businesses, and other businesses, and people who may be out of work, or whose businesses may experience a period of very low activity. We don't have those tools. We have the tools that we have, and we use them. I think we've used them quite aggressively for the benefit of the public,” he said. For Luke Tilley, chief economist for Wilmington Trust, the Fed’s actions were “necessary, but not sufficient to keep the economy from sliding into an extended downturn.” “Ultimately the success of the disease mitigation effort and the federal fiscal response will be critical in the outcome,” he wrote to investors March 15. By Jacob Owens jowens@delawarebusinesstimes.com

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