The Federal Reserve has cut its funds rate to zero (to 0.25%) and announced another wave of quantitative easing (QE4).  These actions provide confirmation that the U.S./global financial system is so dependent on stable/rising asset prices that any hint of price volatility is cause for central bankers to go crazy. 

“The Federal Reserve is prepared to use its full range of tools to support the flow of credit to households and businesses…the Committee will increase its holdings of Treasury securities by at least $500 billion and its holdings of agency mortgage-backed securities by at least $200 billion…The Committee will continue to closely monitor market conditions and is prepared to adjust its plans as appropriate.” FOMC Statement (Bolds added)

And yes, the contrast between “at least” and the word “adjust” can only mean one thing – if this doesn’t work the Fed will print and buy more stuff!

While many argue that allowing the financial sector to suffer a downturn would be irresponsible given the weakening economy, it is worth remembering that the emergency and temporary actions undertaken during the last crisis (2008) have yet to be unwound.  Does anyone really believe that today’s actions, supposedly to combat the coronavirus, will be unwound once coronavirus concerns recede?

Suffice to say, with price corrections entirely intolerable and liquidy pauses evoking outright policy-panic, the financial system remains forever rigged. Eventually this ridiculous situation – perhaps after NIRP or (more) overt debt monetizations – will lead to widespread investor distrust of central banks and/or a U.S. dollar revolt.  This said, as central bankers unite and toe the line, precious metals remain earthbound, and the threat of major sovereign default(s) is low, there is scant evidence that we are close to this point yet. 

“The Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank, the Federal Reserve, and the Swiss National Bank are today announcing a coordinated action to enhance the provision of liquidity via the standing U.S. dollar liquidity swap line arrangements…” PR

For those keeping track, it took 16-days from record highs for stocks to enter a technical bear market, circuit breakers were triggered twice last week, the Fed intervened in the markets three times last week, and to start this week the Fed has already cut to zero and announced QE4. Hold on tight…