On Sunday, March 15, 2020 after an emergency meeting, the US Fed announced that it was lowering the US Fed funds target rate by 100 basis points to a range between zero and 0.25%, and that it will expand its bond holdings by at least $700 billion. The expansion of the Fed’s balance sheet, depicted in this week’s chart, will likely bring it to levels surpassing records reached in the aftermath of the Financial Crisis. Hyper accommodative measures being undertaken by the Fed (and other central banks) are occurring simultaneously with aggressive fiscal measures being enacted by the Trump administration and the US Congress. The magnitude of the fiscal and monetary spending underscores the degree of uncertainty regarding the economic and social impact of the COVID-19 virus. What had been a robust economic and fundamental backdrop in America just a few short weeks ago will likely turn out to be a low-growth to stagnating to contracting-growth environment during the current quarter and likely the following quarter. The economic downshift beyond the Summer is a major question mark and will be dependent on the efficacy of containment measures, potential seasonal dormancy of the virus, and successful treatments and outcomes. [chart courtesy Bloomberg LP © 2020]
