Peter Schiff: They’re Going to Need a Bigger Rate Cut!
Stop and pause for a moment and think about what just happened. The Federal Reserve says the US economy is strong, but it just initiated emergency monetary policy last seen during the worst financial crisis since the Great Depression.
Something doesn’t add up.
The Fed cut rates 50 basis points on Tuesday. It was the first interest rate move between regularly schedule FMOC meetings since the 2008 financial crisis. The Fed funds rate now stands between 1.0 and 1.25%.
The decision to cut rates was unanimous.
As the Wall Street Journal pointed out, this kind of Federal Reserve move has been reserved for “when the economic outlook has quickly darkened, as in early 2001 and early 2008, when the US economy was heading into recession.” The 50-basis point cut was the first cut of such magnitude since December 2008. Pacific Management investment economist Tiffany Wilding called it a “shock-and-awe approach.”
It may have been shocking, but the results weren’t awesome.
Stocks tanked anyway.
The Dow Jones closed down 785.91 points, a 2.94% plunge. The S&P 500 fell 2.81%. The Nasdaq experienced a similar drop, closing down 2.99%.
Meanwhile, gold rallied, quickly pushing back above $1,600 and gaining over $50. Wednesday morning, the yellow metal was knocking on the door of $1,650.
Bond yields sank again as investors continued their retreat into safe-havens. The yield on the 10-year Treasury dipped below 1%.
In a press conference after the announcement, Federal Reserve Chairman Jerome Powell said the central bank “saw a risk to the economy and chose to act.”
“The magnitude and persistence of the overall effect on the US economy remain highly uncertain and the situation remains a fluid one. Against this background, the committee judged that the risks to the US outlook have changed materially. In response, we have eased the stance of monetary policy to provide some more support to the economy.”
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