Panicked Fed Slashes Rates to Near 0%, Throws $700 Billion QE on Top, After $1.5 Trillion Shock-And-Awe Repos Fizzle

Unprecedented measures, only they're not working, the end of the Everything Bubble nears

Sunday at 5 p.m., the frazzled Fed announced in a statement that it slashed its policy interest rate by a full percentage point, to a target range between 0% and 0.25% for the federal funds rate and that it “expects to maintain this target range until it is confident that the economy has weathered recent events and is on track to achieve its maximum employment and price stability goals.”

It also slashed by a full percentage point to 0.25% the interest rate at its discount window, where banks can borrow from the Fed directly.

It also slashed the Interest on Excess Reserves that it pays the banks for parking their cash at the Fed to 0.10% effective Monday. In 2019, the Fed paid the banks $34 billion in interest on reserves – which is pure income for the banks. This income for the banks is now near zero going forward.

In the press conference following the announcement, Fed Chair Jerome Powel said for the umpteenth time that the Fed doesn’t see negative interest rates as appropriate – and that’s a good thing for the banks, because bank stocks have collapsed to multi-decade lows in negative-interest-rate Europe.

And while he was at it, Powell said that the FOMC meeting that was supposed to take place this Tuesday and Wednesday had been cancelled.

The also Fed announced $700 billion in QE-4 or QE-5 or whatever, promising to increase “over coming months” its holdings of Treasury securities by “at least” $500 billion and its holdings of mortgage-backed securities (MBS) by “at least” $200 billion. In the Implementation Notes, it specified that the Desk “conduct these purchases at a pace appropriate to support the smooth functioning of markets for Treasury securities and agency MBS.”

And this Treasury market the Fed is referring to has gone haywire. The 10-year Treasury prices fell all last week, with yields tripling in five days, from a historic low of 0.32% Monday morning to 0.98% late Friday, having briefly hit 1.02%. For the Fed that’s scary.

Upon the panicked Sunday afternoon announcement by the Fed, S&P 500 futures plunged 5% to hit limit down, and for now remain stuck at the limit down, which might make for, let’s say, an interesting Monday morning:

The whole Sunday afternoon maneuver, on top of the mega shock-and-awe maneuvers Thursday and Friday reek of sheer and outright panic – and they’re the opposite of being confidence inspiring. That stock futures plunged after the Fed had effectively put its biggest tools to work shows how obvious this panic is.

Here is Fed Chair Jerome Powell, upon seeing with his own eyes the plunge in the stock futures, as envisioned by cartoonist Marco Ricolli, exclusively for WOLF STREET:

The Sunday afternoon surprise announcement comes on top of the mother of all money-printing repo-market and Everything-Bubble surprise shock-and-awe bailouts that it had announced and kicked off on Thursday during afternoon trading hours: A series of $500-billion term repos at least through April 13, amounting to $4.0 trillion in new money over the four-week period. Of this, it offered $500 on Thursday, and two $500 billion repo operations on Friday, for a total offer of $1.5 trillion. But hardly anyone showed up to get this repo cash.

On Thursday, of that $500 billion three-month repo cash offered, only $78.4 billion were taken. On Friday, of the $500 billion in three-month repo cash, only $17 billion were taken; and of the $500 billion in one-month repo cash, only $24.1 billion were taken. In total, of the $1.5 trillion in cash offered through these three term repo operations, only $119.5 billion were taken – just 8% of the total the Fed had offered.

In addition to this fizzled $1.5 trillion in repos offered on Thursday and Friday, the Fed will also offer $500-billion in one-month repos and $500 billion in three-month repos per week through April 13, as announced on Thursday. But, given what happened on Thursday and Friday, it seems unlikely there will be enough demand for this cash.

These mega programs are on top of the smaller repo operations, the overnight repos that unwind the next day of up to $175 billion, and the $50-billion one-month repo on Thursday, and the twice-a-week $45 billion two-week repos, and the $60 billion a month in QE, now including Treasuries of all kinds and maturities.

These unprecedented measures show just how panicked the Fed has become about liquidity in the market, about the banks, about the Treasury market, about the repo market, and generally about the Everything Bubble that it had spent a decade inflating so assiduously.

Source: Wolf Street

  1. cechas vodobenikov says

    these “business cycles” produce anxieties for those that worship money—they r inevitable in vulture capitalist societies —angloshere nations…this is why safety nets r nearly absent in the USA….concepts, capitalism/communism, etc r slogans…meaningless…the essential questions regard how a society manages crises and how they address the needs of their people

  2. 14th Troll says

    The proverible drunken sailors have run the cash truck in the ditch!

  3. JustPassingThrough says

    DJI stopped out at 20k.
    Let’s see at 2k/day, we should get down to fair value in about 6 days.
    I hear that the elevators in the Wall Street offices have been programmed not to go to the top floor. My, my.

  4. IM DeRose says

    Gee, if things get much worse the jUS war machine is liable to nuke Syria, Iran, Russia, China, Mexico and Canada…maybe even a shithole or two where all the anti-Americans are cowered in.

  5. Jesus says

    The Fed was a willing enabler in propping the Wall Street and the US with easy money creating a debt bubble that has been burst.
    If economic conditions get more difficult in the near future, the Fed lacks the tools to combat the issue.

  6. David Chu says

    All this financial gobbledygook is meant to accomplish one thing and one thing only: to fool the masses into believing that their economic and financial system works. I believe that this transpired because the only system that really works being national socialism was completely destroyed. All that is left is Jewish capitalism in the West and Jewish communism in the East. Communism basically died with the Soviet Union. Capitalism is dying right in front of eyes right now.

  7. Rowdy-Yates says

    Today some headlines are stating a 15 day lock down for all of America. if that happens then China won the economic war. China never shut down and was able to function while fighting the virus. Obviously the virus is overwhelming America

  8. Brion Adair says

    Finally the bottom feeders will be going to the bottom where they belong.

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