The Federal Reserve has panicked.
It didn’t just fire its bazooka, it dropped an atom bomb of liquidity and monetary stimulus. The Fed slashed rates 100bps and announced $700 of QE. Jay Powell, the Fed chair, also slashed rates at the discount window emergency rate by 125bps and cut banks’ reserve requirements.
There was also a coordinated central bank action by the Fed along with its counterparts in the UK, Europe, Japan, Switzerland and Canada to ease the flow of dollar liquidity. This should help stem some of the moves in FX markets but I fear that there is still an almighty dollar squeeze. the RBNZ also cut rates by 75bps and the BoJ is stepping up ETF purchases.
Policymakers are really starting to panic – this ought to be good for markets but the uncertainty over the economy and the outbreak mean everyone is derisking, everyone is seeking shelter in cash. The collapse in gold prices in the last week in the face of this volatility has been likened to the biggest margin call in history.