The measure reeks of panic. Out of nowhere, and outside the usual procedure, the US Central Bank (Fed) lowered its key interest rate and this is equal to 0.5 percent to between 1 and 1.25 percent. The last Time the Fed took an extraordinary interest rate cut in the financial crisis. Now, the US Central Bank has justified its actions with the risks of Coronavirus for the US economy.
at the same time and in a certain contrast to this, the Central Bank writes, the fundamental position of the US economy was stable. It also Fed Chairman Jerome Powell, in his press conference that followed the surprise decision has put a lot of value. The measure will not be borne by all the members of the Fed's decision-making body, there was a vote against.
The Emergency interest-rate cut alone is not sufficient for the USA, a number of disturbing conclusions. For those that the Central Bank is the share prices always to support and Intervene mainly to the slump in the stock markets in the last week goes back. The recovery in the markets since yesterday has been nourished by observers, mainly with the expectation of further monetary spurts by the Central Bank. And shortly thereafter, it seems, has heard the Fed the reputation of a duty done.
The situation could be much worse than assumed
For the Functioning of a market economy that is a dangerous message. The legitimacy of the system alone is being undermined by the fact that rising stock prices primarily benefit the richest of the society. The inequality in the United States are already high.
Further, the measure can be read as Yielding to the pressure of US President Donald Trump. This sees his re-election chances are closely linked to the rise in stock prices and has therefore required the Central Bank to repeatedly lower interest rates. With today's action by the Fed is corrupt in two ways, their independence, compared with market expectations and compared to the policy.
in Addition, the Fed's decision suggests that the situation in the USA is much worse than is officially known. Since the real economy is once, where the probability of a recession is in view of the recent development more likely. In addition, there are also references to dangerous disruptions in the financial and credit markets. Such distortions have triggered the financial crisis.
The measure of the Fed, suggests a very unpleasant development in the near term – not only in the United States.
In any case, the reduction in interest rates has consequences for the whole world, and other Central banks. Also on Tuesday, before the Fed decision, the Finance Ministers and Central Bank heads of the G-7 countries stated that they would decide, if necessary, further measures if the situation worsens because of the Virus.
The focus from a Swiss point of view, the European Central Bank and the Swiss national Bank stands. In the past, market observers assumed that the ECB Christine Lagarde, the interest rates will continue to reduce in the negative range. The question now is whether the ECB to take emergency measures fascinating.
The Swiss national Bank, the US decision is thus under pressure from all sides. The actions of the Fed threatens to confirm the assessment that for the world economy, something Bad is imminent. This alone threatens to increase the attractiveness of the Swiss franc as a safe haven, which can be a danger for the Swiss economy as a whole. The reduction in interest rates in the United States and a possible expansion of the money by the ECB, the SNB set the relapses in addition, under increased pressure to reduce the own, already the world record-low key interest rate further into negative territory.
Alternatively, you could be forced, even more than in the past, through interventions on the foreign exchange markets, an appreciation of the slow down. So, you but the risk of the United States as a currency manipulator branded. In the election campaign, standing Trump would show a drastic downturn in the economy, no demureness, if he can make other countries for the misery in their own country. In a Tweet after the Fed decision, the US President has already warned against "unfair" reactions of other countries and the Fed is admonished to reduce, in this case, the interest more.
whatever the reasons for the extreme measure by the Fed on Tuesday afternoon. They all point to a very unpleasant development in the near term – not only in the United States.
Created: 03.03.2020, 19:43 PMUpdated Date: 03 March 2020, 19:00