The Federal Reserve cut their rate by 50 basis points today…the goal is to boost confidence in the US economy. Well it isn’t going to have much effect on the stock market and it’s a waste of time if they want to spur economic activity.
Usually the Fed lowers rates when the economy needs additional liquidity to produce goods and provide services. Today’s economy doesn’t need liquidity…there is plenty of money in the marketplace…consumer confidence has been high…business is doing very well.
The problem is going to be shortages of products as the supply chain from China starts to slow down because of factory and infrastructure closures there because of COVID-19. No amount of money can replace those lost goods.
And if we have mass shutdowns here at home, there will be lost business when people are forced to stay home. Businesses will close or lay off employees because there is not enough business to stay open and those employees will not have any money to spend…this whole cycle will continue until the threat of COVID-19 has passed and supply chains and businesse can return to normal.
This isn’t something that more money and liquidity in the marketplace can solve. If I have all the money I need to buy a new car but there are no new cars to buy because car parts from closed foreign manufacturers aren’t available…cutting rates isn’t going to build more cars for me.
To me it seems they are exacerbating the fear in the public and they are wasting the one tool at their disposal when it has no chance of fixing this economy.
And heaven forbid that they are doing out of fear of the White House.