The Fed fails to impress markets with a surprise 50 bps cut.
- In a surprise move, the FOMC today announced a cut in the fed funds rate by 50 bps. The Fed did not wait for the March meeting to ease monetary policy in the face of mounting risks from Covid-19.
- Fed Chair Powell reiterated that overall the US economy and financial system are in a healthy state. Easing was meant to prevent tighter financial conditions from affecting the real economy and to sustain confidence.
- As damages from the coronavirus will show up in H1, we expect the Fed to cut rates by at least another 25 bps. This will sustain the sluggish recovery we predict for the second half of the year.
- Financial markets do not seem to be overly convinced of the move, as the main indexes lost ground after the announcement.