The Fed Takes Unprecedented Policy Step

Fed Fighting Hard For The Economy

As the corona virus crisis continues to dominate market action, central banks are taking increasingly aggressive action as they attempt to stop the global economy from sliding into a recession. The Federal Reserve has been highly engaged in such action all month. With a stream of unscheduled announcements detailing rate cuts and QE increases, the market environment is starting to feel a lot like the dark days of the global financial crisis.

Last week, the Fed announced a $750 billion QE package. Following this, over the weekend, they confirmed that they would be making a further $1 trillion available to banks and corporations. However, with markets continuing to slide, the Fed has announced yet further action.

In a statement released yesterday, the Fed announced that it will now be running unlimited QE in its most potent attempt yet to help underpin the US economy.

Key Quotes From The Statement:

“The Federal Open Market Committee is taking further actions to support the flow of credit to households and businesses by addressing strains in the markets for Treasury securities and agency mortgage-backed securities.The Federal Reserve will continue to purchase Treasury securities and agency mortgage-backed securities in the amounts needed to support smooth market functioning and effective transmission of monetary policy to broader financial conditions. The Committee will include purchases of agency commercial mortgage-backed securities in its agency mortgage-backed security purchases.”

The statement went on to say:

“In addition, the Open Market Desk will continue to offer large-scale overnight and term repurchase agreement operations. The Committee will continue to closely monitor market conditions and will assess the appropriate pace of its securities purchases at future meetings.”

New Chapter in Fed Policy

This commitment by the Fed, to purchasing securities as needed rather than in specific amounts, represents a new chapter in its monetary policy approach. It once again illuminates the severity of the crisis. Along with the Fed’s recent decision to purchase corporate bonds for the first time, there is a hope that these new efforts will be able to help plug the hole in equities markets. For now, however, asset prices remain under pressure. Fresh lockdowns in the US and the threat of an imminent lockdown in London cast a dark shadow over trader sentiment.

Dow Hits Lowest Level Since 2016

The sell-off in the Dow has seen price reversing from highs of 29549 earlier in the year to current lows of 18942 (as of writing). The market has now broken down through several key levels. With the RSI extended heavily to the downside, we could see some recovery higher from here. However unless price breaks back above the 20393 level, focus is on a further push lower with the 18030 level the next support to watch.