The Fed Will Cut Rates on March 18

Mish

It's now baked in the cake. The Fed will cut rates on March 18 and most likely at least twice more.

According to CME Fedwatch the odds of a rate cut in March jumped to 96.3% today from 8.9% a week ago.

Looking ahead to December, it's highly likely at least two additional cuts are on the way.

December Rate Cut Probabilities

December Implied Rate Cuts Probabilities vs Current FF Rate

  • At Least 2 Cuts: 96%
  • At Least 3 Cuts: 77%
  • At Least 4 Cuts: 40.6%

What's Happening?

  1. Feb 19: Fed Minutes Highlight Coronavirus Concerns and Uncertainty 8 Times
  2. Feb 24: Bond Yields Crash and Gold Soars on Pandemic Threat
  3. Feb 25: CDC Admits Spread of Coronavirus in the US Appears Inevitable
  4. Feb 25: Lie of the Day: This is Not a Pandemic
  5. Feb 25: Nearly 50% Odds of "At Least" 3 Rate Cuts by December
  6. Feb 26: Trump says We are "Very, Very Ready for the Coronavirus, for Anything"
  7. Feb 27: Useless Act: California Monitors 8,400 People for Coronavirus; 33 Test Positive
  8. Feb 27: Containment Fails: Coronavirus Tweets of the Day

Rate cuts odds started rising before coronavirus threat materialized on news Largest Global Shipping Decline Since 2009.

Mike "Mish" Shedlock

Comments (88)
shamrock
shamrock

They might do it before March 18.

No. 1-26
Sechel
Sechel

If so they're clearly reacting more to the stock market than anything else. Of course the Fed would never make such an admission

abend237-04
abend237-04

Oops! Houston, we have a problem, and I think I now see why China built the huge quarantine centers: The kits are useless. They have no options other than quarantine and isolation until they get a kit that works, ditto CDC... far too many false negatives, and positives to rely on current kits for managing the crisis.

If I take Jim Bianco's current plot of total cases outside China, excluding the cruise ship, and project it forward at the 35.78% per day growth rate of the last five days, it will go from 2,603 on 2/26 to China's current total of 78,630 in 12 days. That should probably roll off if outside China pays attention and takes it seriously.

I'd bet the Chinese trusted the kits early on and crammed tens of thousands together testing, blowing Rnaught through the roof before realizing what was happening.

The Fed will cut.It will be just as effective as the kits.

MiTurn
MiTurn

When your only tool is a hammer, every problem is a nail.

Six000mileyear
Six000mileyear

A cut would be due to the plunging yield in the bond market. A rate cut for the purpose of stimulating the economy is meaningless if there is nothing to sell from China, and people are too sick to shop.

Tengen
Tengen

They'll be cutting with extreme prejudice. They've probably been dusting off Benny's bazooka for a week already.

abend237-04
abend237-04

Almost forgot...the economy! I think every CEO/CFO in America is hoping they finally have cover for a kitchen sink quarter. They haven't had one since Q1, 2009 and there's a huge bag of trash being dragged along. If I'm right, they'll all discover the need to write off billions...simultaneously.
This should allow the market to clear somewhere around 20,000, coronavirus or no.

TimeToTest
TimeToTest

Thank goodness the Fed is hear to save us.

Can they print vaccine?

Greggg
Greggg

Anything to keep treasuries from inverting, right?

Realist
Realist

The Fed is simply one of the players to be heard from. As I have stated many times, the powers-that-be (all Central Banks, Governments, etc) will be doing everything possible to keep things going. I expect co-ordinated moves all over the world: lower interest rates, tariff elimination, QE infinity, massive infrastructure spending, tax cuts, helicopter money, etc. I do not know when this co-ordinated action will begin, but it should be coming over the next few months.

Obviously, this will not prevent the human impact of the virus. But it is the response I expect to the economic impact. How effective it will be, is also an unknown.

I still expect an average of 1% US growth this decade (and 2% global growth). We may indeed experience a recession this year.

Sunriver
Sunriver

O.5% rate cuts at a time. Until...Yeah you guessed it; Negative rates. Throw in a QE V (or is it IV I lost count) and a $6 trillion FED balance sheet, we'll finally be in a Japanese style decades long deflationary spiral. Heck, while the FED is at it, they might as well become the largest equity holder on the S&P 500. Isn't Moneterism great!

njbr
njbr

Increasing case numbers will kick the bottom out of the service economy in the US, and the rise in cases outside the US will disrupt supply chains. The end effect is very high unemployment.

Lower interest rates will not restore health or supply chains.

I think there will be an almost revolutionary force of anger if the only apparent direction the government goes is to make the financial sector even more wealthy. This is how a socialist will win the election

Healthcare and minimum basic income--now whose platform is that?

Sunriver
Sunriver

Nikkei is down 700 points. I wonder if the Bank of Japan will cut rates to say -10% or so? Nothing makes sense anymore. If it was 1919 bond yields would be soaring!

TumblingDice
TumblingDice

I do not see how the rate cut fixes the Coronavirus health crisis.
Many people are already heavily in debt, so you want to encourage more debt.
Whatever.

Personally, I'm doing more bargain hunting in the stock market. On Tuesday, I bought UPS at $97 (had been recently trading at $120). Today UPS dropped to $90, now an even better buy.

TumblingDice
TumblingDice

Today we had another 1,000 point haircut in the Dow so therefore a rate cut is needed. I own Microsoft which dropped $12 (or 7%) today to close at $158. Recent all-time high was $190. This is my best performer, bought at $26.45 in 2012. I'm still up 500%.

I'm taking the Alfred E. Newman approach, "What me worry". Lol.

4 Replies

FromBrussels
FromBrussels

1000 points down is peanuts, especially taking into account that the recent 2019-2020 rally is based upon ....thin air and smug investors delusion! The DOW at 28K just because out of thin air created money's cheap and abundant is insane ! Btw, if you bought Msft at 26$ you should ve sold by now, yet all you can come up with is that conservative savers should be totally wiped out in order to build yet another floor upon the decrepit house of cards built since the BFC.... Your avatar definitely suits you...

TimeToTest
TimeToTest

The smugness that Microsoft can’t fall 80% amazes me.

It can. It might.

TumblingDice
TumblingDice

I'm Not in favor of a rate cut. I was being facetious. That is not obvious in the wording.
Agree market has fluff, but what are options w Fed Reserve robbing savers.

TumblingDice
TumblingDice

@FromBrussels, yes I did buy MSFT at $26, check Nov 2012 trades. My strategy is to buy dividend paying blue-chips in different industries. MSFT has jumped like crazy in last 2 years.
I would not buy at today's prices. I did say it was my best performer.

lol
lol

Permanently weak and pathetic economy that is totally dependent on money printing and govt checks,govt handouts,govt bailouts,govt subsidies,govt this,govt that, I seriously doubt ZIRP gonna do much if any good,maybe buy a few more months for stocks but not much else.

Jojo
Jojo

When all you have is a hammer, everything looks like a nail. Lowering rates only penalizes savers when rates are arounfd 1%.

Sechel
Sechel

One year is at 1%, 30 year at 1.7% Do rates even have an impact when it comes to a Corona virus threat? I get that rate cuts are the Fed's favorite tool. My favorite tool is a screw driver but it doesn't work for everything.

Whisper2018
Whisper2018

At this point, does one or more rates cut make any difference !!! more of the same !!

ksdude69
ksdude69

Good! I feel so much better even if there's airborne aids in the air.

Boot6761
Boot6761

Fed is helpless...lipstick on a pig...band aid on an artery...one can seriously think that this was intentional on the Chinese behalf...their economy was tanking...and this was the way out...I know it sounds conspiracy theory but too many corporations were teetering on the edge this past reporting season...too much euphoria and buybacks...

Carl_R
Carl_R

Presuming that the market doesn't rally today, and it just stays where it is at the moment, down 3.5% or worse, that will set up for an interesting day on Monday. Historically, the typical setup for a crash is to have consecutive down days on the week prior, starting from an extremely high level. Then, over the weekend, the people have time to look at what has happened to their investments, and consider taking action. At this point, I would expect baby boomers to be a bit touchy. They have their lifetime savings invested in the market, and with retirement at hand, they have no time left for their portfolio to recover if the market crashes. At 40 a down market is a buying opportunity. At 65, a crash is a disaster.

If baby boomers panic, and a significant portion of them decide to bail on Monday, we could see a crash. Consider that in 1929, after losing about 20% of it's value in the prior week, the market dropped about 25% on Monday and Tuesday as panic selling was combined with margin calls.

Right now the market is off about 15% in the last week or so. Will that trigger panic on Monday, and drive another 25% drop, taking the Dow back to 19k? I have no idea, but it's not out of the question. If it does, Tuesday midday is a historical time for a bottom, at least a temporary one.

I will make one prediction though. I predict that this weekend will bring a parade of talking heads, on every channel, and every news service, all urging people not to panic, to be calm, telling you that fears are overblown, the coronavirus is not that big a deal, the economy is sound, and this is a buying opportunity. Will people believe them, or will all those reassurances only make them more nervous? Only time can answer that.

AWC
AWC

Au off 55 bucks today? Dash for cash is on.

Nasty Edwin
Nasty Edwin

Is higher gold prices baked into the cake?

Jojo
Jojo

Coronavirus Fears Are Driving Interest Rates Down, a Bad Omen for the Economy
Very low rates mean there is little room to maneuver if economic conditions get worse.
By Neil Irwin | Feb. 28, 2020

Herkie
Herkie

I agree with Shamrock, not only will they do it prior to the 18th but it will be a half point cut. To wait, or to make it a mere quarter point cut would seriously risk being seen as weak and remaining behind the curve. If they are pressed into a cut they don't want to make they will have little choice but to make it obvious they are willing to be ahead of the curve, anything less would backfire as too little too late. It could cause a serious and unstoppable collapse. In all it would be better to do nothing than to take any half measures.


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