Commentaren van diverse partijen op renteverlaging Fed

March 4, 2020

Hieronder volgen de commentaren van diverse partijen als gevolg van de renteverlaging door de Fed.

Onderstaand het commentaar van Esty Dwek, Head of Global Market Strategy bij Natixis IM Solutions. Zij verwacht onder andere dat - in navolging van de renteverlaging door de Fed vanmiddag als bescherming tegen de gevolgen van het coronavirus - andere centrale banken zullen volgen met een renteverlaging of markten zullen ondersteunen met meer liquiditeit.

Market Flash – Federal Reserve 3 March 2020

 The US Federal Reserve cut its benchmark interest rate by 50 basis points to a range 1%-1.5% in order to protect the US economy from the coronavirus. And Mr. Powell stated they remain ready to act.

US equities rallied after the announcement, and US treasury yields fell, with the 10-year yield around 1.09%. The US dollar retreated further and gold moved higher (USD 1621 per ounce).

Earlier today, the G7 stated they remain ready to act as needed, including with fiscal measures, which had underwhelmed markets.

We believe other central banks will either cut rates or add liquidity, bringing additional support to markets.

Monex: Fed schokt markten met renteverlaging van 50 basispunten in reactie op coronavirus

Hieronder volgt een commentaar in het Engels van Ranko Berich, Head of Research bij Monex Europe op de renteverlaging van 50 basispunten door de Fed.

‘Jay Powell and the Fed have taken the warning financial markets have given about coronavirus over the past weeks to heart and brought out the big guns with a 50bp intra-meeting rate cut. This is a tool that has not been used since 2008, and comes after a serious worsening in the global macroeconomic outlook due to the Covid-19 outbreak shattering previous optimistic assumptions that it would be mostly contained within Q1.

‘On the surface, the rate cut does look like markets have bludgeoned the Fed into cutting rates. OIS markets were pricing in 50 basis points of cuts as early as the end of last week, and interbank lending rates have been plummeting at rates not seen since 2008 over the last week. The weight of these expectations means that if the FOMC did not cut rates, they would risk tightening financial conditions dramatically from market levels. With the world facing a macroeconomic shock of historic proportions, the FOMC has decided that the market is right, and the US economy needs significant monetary support to buffer the incoming shock.

ASI’s McCann: renteverlaging Fed geen wondermiddel

Hierbij een reactie op het rentebesluit van de Fed van vandaag van James McCann, beleggingsstrateeg bij Aberdeen Standard Investments.

McCann waarschuwt dat de rentestap weliswaar verlichting kan brengen voor de markten, maar geen wondermiddel is en het risico in zich draagt dat regeringen op hun handen blijven zitten. 

McCann’s reactie:

‘Clearly the Fed is alarmed by the risks posed directly by the coronavirus, but also indirectly via the panic that took hold of financial markets last week. If left unchecked this explosion in financial stress could have threatened the cycle. This step should provide some comfort to markets, boost borrowers and help support confidence.

‘However, this is not a panacea. Cutting rates in a situation like we’re in now is a pretty blunt tool and you’d really want it to be combined with governments stepping in to act as well. By acting now, the Fed risks giving governments all the excuses they need to sit on their hands.’

Onderstaand het commentaar van Paul Brain, Head of fixed income bij Newton Investment Management, onderdeel van BNY Mellon Investment Management.

Paul Brain, manager of the BNY Mellon Global Dynamic Bond Fund and head of fixed income at Newton Investment Management, comments on the Fed cutting rates in response to threats from Coronavirus:

‘The G7 communication earlier today was light on facts but the Fed has responded quickly with an emergency rate cut. Other central banks are likely to follow but the Fed has more room to move than others - the European Central Bank and the Bank of Japan have limited rate cutting room from current negative levels. Other measures such as providing liquidity to the banking system and some fiscal support should follow, like Italy which has already announced an increase in spending.

The US bond market had already priced in 100bp rate cuts but the initial reaction is to price in more. 10 year yields are heading towards 1% and this price action may be short-lived if risk assets respondwell or the market realises that central banks are slower to react. Also if the emphasis is on ‘other’ measures and not further rate cuts, then the safe-haven bid might well slow down.’

David Page, Senior Economist at AXA Investment Managers, comments on the latest US Federal Reserve rate cut:

• Fed cuts Fed Funds and IoER rate by 50bps in surprise intermeeting cut – the first of its kind since 2008.
• Fed Chair Powell explained that the cut was a reaction to ‘evolving risks’ of the coronavirus.
• He stated that the Fed believed that the policy was currently “appropriate’, but that the Fed was ‘monitoring closely’ and would “use out tools appropriately’.
• Powell described a “fluid” situation, we consider the likelihood of a further 0.25% easing at the scheduled meeting on 18 March and in late April, taking the FFR to 0.5-0.75%.
• Powell also referred to the G7 statement showing a high level commitment to use appropriate tools. This throws down the gauntlet to other central banks, but we see other central banks as more likely to stick to scheduled meetings.

The US Federal Reserve announced an intermeeting 50bps rate cut to the Fed Funds Rate, taking it to 1.0-1.25%, and to the interest on excess reserves (IOER) rate, taking it to 1.1%. The rate cut was described as unanimous and in reaction to the ‘evolving risks’ surrounding the coronavirus. This was the first inter-meeting rate cut since 8 October 2008, when the Fed reacted to the Lehman’s Brothers collapse. We had only just shifted our outlook to suggest that the Fed would cut by 0.50% this month (at its scheduled meeting on 18 March) and a further 0.25% in April. We were surprised by the Fed’s swifter move.

Fed Chair Powell held a press conference after the cut and explained that the Fed was reacting to “new risks” posed by the coronavirus to the US economy. The Fed Chair stated that he saw the Fed as part of a multifaceted approach, including health institutions, where appropriate fiscal policy, but that monetary policy could also play a role by offsetting tighter financial conditions and supporting consumer sentiment. Powell stated that he was happy with monetary policy and thought the current stance was appropriate. However, he also said that the Fed continued to “closely monitor” the situation and would ‘use our tools to act appropriately’, language that continued to echo the Fed’s statement on Friday that preceded this easing.

The outlook is necessarily uncertain for the next meeting in a fortnight’s time. Much will depend on the unknown developments in coronavirus. The US currently reports 106 cases. South Korea saw the number of cases rise from 100 to 4000 within the space of around 10 days illustrating how “fluid” this situation could prove. If the virus continues to spread globally and in the US this could present additional downside risk to the US economic outlook and create an incentive to ease policy further. We would suggest risks are skewed to the downside. Much will also depend on market reaction. The S&P 500 index rallied by 7% on Monday after the Fed’s statement on Friday. It is so far down 1% on the day, with stocks rising and unwinding 2% after the move. If financial conditions tighten further, the Fed may also be encouraged to ease further. The Fed’s decision to move intermeeting likely reflected a desire by the Fed to get ‘ahead of the curve’, with markets pricing at least a 50bps easing at the March meeting and two subsequent cuts thereafter. Markets now consider the possibility – a little shy of 50% - for an additional cut in two weeks’ time, if not this is fully priced for the April meeting. This suggests a view that the Fed has ‘cleared the decks’. However, there seems little point for the Fed moving aggressively now to then sit on its hands for nearly two months until the end of April. Moreover, the experience of the intermeeting cut in 2008 was that it was a complement, not a substitute to easing at scheduled meetings. For now, we pencil in a 0.25% rate reduction at the Fed’s scheduled meeting on 18 March and 29 April taking the Fed funds rate to 0.5-0.75%.

Powell also referred to today’s G7 statement. He stated that this was a strong and high level commitment of what needed to be done, but stated that individual authorities will need to do what is required in their own institutional contexts. Nevertheless, this presents something of a challenge for other international central banks. ECB President Lagarde only suggested providing support yesterday, somewhat behind other central bank’s. With little monetary policy space, the ECB appears keen to move more cautiously. However, the Fed’s move throws this into sharp relief, not least as the euro reached $1.12 after the Fed’s cut and is up nearly 4% over the last couple of weeks. Nevertheless, we see the ECB continue with a cautious approach to easier policy that could include targeted liquidity provisioning next week and a refocus towards corporate bond purchases as we move into Q2. The Bank of England will also have to consider its policy in the context of a meeting not scheduled until 26 March. For the BoE it makes sense to wait until after the 11 March Budget and with global financial markets not hanging on the BoE’s outlook it may have the luxury of more time. Nevertheless, we forecast a 0.25% rate cut at that meeting on 26 March.

Hier een reactie van de Duitse vermogensbeheerder DWS over het Fed besluit.

‘Christian Scherrmann, DWS U.S. economist, on today's Fed decision

In an unexpected move, the Fed lowered interest rates by 50bps to a new target range of 1.00-1.25% just two weeks ahead of its regular meeting. Despite the somewhat drastic move, the current state of the economy was described as strong. The spreading of the coronavirus, however, would have ‘…brought new challenges and risks.’ Risks to the outlook had even changed materially, Powell added. While the effects from the coronavirus crisis do not show up in the data yet, and are in an early stage in the U.S., Powell referred to concerns for example in the travel and hotel business. On the question whether this would be part of a coordinated action, Powell answered that they are in an active discussion with other central banks but their action represents what they think would be the right policy for the U.S. Any use of tools beyond rate cuts had not been discussed.

Today’s extra-curricular rate cut came as a surprise to us. While we considered a cut in the regular meeting in March, even up to 50bps, to be quite plausible, today’s action leaves us with some concerns. One of them would be if markets are now losing faith in the independence of the Fed as some market participants, and President Trump, pushed hard in such a direction. Another would be if the Fed sees more risks than markets do, basically adding fuel to the prevailing uncertainty. Despite the fact that monetary policy cannot repair supply chains, cure any disease or make people to go wine and dine twice in a single evening to make up for previously lost service sector activity, the rate cut helps in terms of funding of consumers and businesses.’