U.S. Economy Hangs by a Thread, After Federal Reserve Move
A day after the U.S. Federal Reserve announced up to zero cuts on funds rate target. And 700 billion set aside for a quantitative program, the economy is still hanging by a thread. This is according to former Atlanta Federal President, Dennis Lockhart.
Speaking to CNBC’s Squawk Box Asia, Lockhart, commended the efforts of the Federal Reserve stating that it has now spent all of their bullets while the economy is still looking at the possibility of a recession.
“I think we should applaud the Fed. They in a way got as much ahead of the curve as they can.”
The measures, taken by the Federal Reserve on Sunday aimed at easing effects of the coronavirus on the U.S. economy.
They aim to lower their targets by a whole percentage, between 0.25%-0%. Additionally, they plan to set aside the $700 Billion for Treasuries and Mortgages backed by securities. The Fed hopes to wither through spreading the coronavirus which has threatened the global economy.
The Federal Reserves Forced Into Surprise Moves
The Fed’s latest decision backed up their earlier announcement almost a fortnight ago, when it cut its benchmark interest rate by 50 points, a move that affected stocks positively for a while before the market crashed even further.
As the first major financial crisis since 2008, the Fed stated that their decision was based on evolving threats – the virus. As is evident from economic news coming from other regions of the world. The statement said:
“In light of these risks, and in support of achieving its maximum employment and price stability goals, the Federal Open Market Committee decided today to lower target for the federal funds rate.”
In their latest announcement, however, the goals have slightly changed. The Fed is looking to support the economy even further, from the coronavirus effects.
According to Moody Analytics’ Chief Economist, Mark Zandi, the move indicates the Fed’s concern. They worry that the financial markets are breaking and won’t be able to work anymore. He shared, “I don’t think they would have done this unless they felt the financial markets were at significant risk of freezing tomorrow.”
Cutting Interest Rates Is Not Enough Anymore
Whether the moves will be successful or not in unblocking the treasury markets, Lockhart stated that there is reason to be hopeful that the economy will not go into recession. He said:
“I think recessionary conditions are definitely a risk. We’re dealing with so much uncertainty. How will this virus situation unfold? And what the economic impact will it have. Nobody really knows.” Added Lockhart.
The latest situation reports by the World Health Organization, which declared COVID-19 as a pandemic about a week ago, indicate that Africa is now among the newly affected regions, with one case confirmed in Kenya.
Africa, which had so far managed to record zero cases now has seven affected regions. One more region in Europe and two in the Americas on the last day. Globally, 153, 517 people have been infected, out of which 5735 have died.
Lockhart maintains that despite this being the last bullet for the Fed, the zero cut-rate bold moves will have an immediate positive effect. As a last resort, however, Lockhart said:
“There is a very good chance that this does not devolve into the systemic financial situation as we saw in 2008. And that’s partly because of all the strengthening that’s taken place. Attempting to build resilience in the financial systems.”
