Bare-knuckle Fed fires nuclear kitchen sink named ‘Big Bertha’ out of its bazooka: Morning Brief

Sam Ro

·Contributor

Tue, Mar 24, 2020, 3:18 AM4 min read

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Tuesday, March 24, 2020

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Speechless Fed watchers blown away by the emergency measures

On Monday morning, the Federal Reserve announced a slew of emergency measures designed to bolster the flow of credit to companies ranging from big corporations all the way down to small businesses as the coronavirus crisis stalls economic activity.

Yahoo Finance monetary policy reporter Brian Cheung has all the details.

But if you’re looking for a concise upshot, here’s how Pantheon Macroeconomics’ Ian Shepherdson put it: “This is an all-out effort to ensure that the business sector can continue to exist even as economic activity temporarily collapses. The Fed is now effectively the direct lender of last resort to the real economy, not just the financial system.”

Struggling to illustrate the scale of the measures, TD Securities’ Priya Misra was left asking, “What's bigger than a kitchen sink?“

Wells Fargo’s Jay Bryson attempted to answer that question by comparing it to what the Bernanke-led Fed did during the last economic crisis: “The actions taken are breath-taking in their scope. Indeed, these steps surpass in breadth and depth the measures that the Fed created in the midst of the financial crisis a decade ago. If the Fed pulled out a monetary policy ‘bazooka’ during that crisis, then the steps it announced this morning are the central bank equivalent of ‘going nuclear.’”

These Fed watchers can probably sympathize with Vin Diesel’s character Dominic Toretto, who in “Furious 7” was speechless as he attempted to express his deep emotions. And so he resorted to saying: “The words ain’t even been invented yet.”

The Fed took unprecedented action on Monay. (Getty)

“Powell rolls out Big Bertha,” JPMorgan’s Michael Feroli wrote.

In a tweet, BlackRock’s Rick Rieder said the Fed had “taken off its gloves for a bare-knuckled battle against the forces of uncertainty and deflation!”

Indeed, that battle against the forces of uncertainty continues. There remains a lot of uncertainty, including uncertainty around the timing and makeup of fiscal stimulus, and uncertainty around the full impact of COVID-19.

Nevertheless, the Fed’s cumulative actions to date appear to be a big step toward stemming the crisis, which has been characterized by “deep tail risks.”

“It removes one key element of the uncertainty facing investors, though the other two—the extent and duration of the spread of the disease, and the ultimate fiscal response—are still unknown,” Shepherdson said.

And so while markets may have fallen on Monday, this is not necessarily an indictment of the Fed. But rather a reflection of persistent uncertainty fiscal stimulus gets held up and confirmed COVID-19 cases continue to surge.

By Sam Ro, managing editor. Follow him at @SamRo

What to watch today

Economy

9:45 a.m. ET: Markit U.S. Manufacturing PMI, March preliminary (44.0 expected, 50.7 prior)
9:45 a.m. ET: Markit U.S. Services PMI, March preliminary (42.0 expected, 49.4 prior)
9:45 a.m. ET: Markit U.S. Composite PMI, March preliminary (49.6 prior)
10 a.m. ET: New Home Sales, February (750,000 expected, 764,000 in January); New Home Sales month-on-month, February (-1.8% expected, 7.9% in January)
10 a.m. ET: Richmond Fed Manufacturing Index, March (-10 expected, -2 in February)

Earnings

Post-market