In a surprise move the Federal Reserve announced an intra-meeting reduction of 50 basis point in the federal funds rate, lowering the target rate to 1 to 1.25%.
The Fed stated, “the fundamentals of the US economy remain strong”, but the “coronavirus poses evolving risks to economic activity.”
It is hard to see how “easy money” offsets disruptions in supply chains and global travel. And although many companies have alerted investors to the prospect of lower earnings in Q1 there is no hard evidence (job layoffs) of any disruption to the US economy.
Policymakers have once again been forced by “politics” and not “economics” to make a move in official rates. The “BIG” test for policymakers is if and when the fear of “coronavirus" fades will policymakers take back the “emergency” rate cut.
Last year’s rate cuts linked to global trade disputes remained in place even after the “phase 1” trade deal was signed.
There was a very good article written in 2015---"Saving the Fed from Itself"---and the main point was that the Fed has taken on a new "political" role. This new role has been thrust upon the Fed because fiscal policy has become too partisan and financial markets have become too big. The full damage from the Fed being forced to address a non-monetary issue may not be seen for years to come.
THE FED HAS LOST ITS INDEPENDENCE.