Summary
- The Federal Reserve has again trimmed its key rate, shearing it to a mere 1%, its lowest level since 2003. Together with the non-conventional measures presently being applied to inject cash into both the banking system and corporations, what all this amounts to is a mega dose of monetary stimulus for the U.S. economy.
- Despite vigorous monetary easing by the Fed, risk premiums are escalating in the economy. From the viewpoint of the other interest rates, it’s as though the Federal Reserve has done nothing so far to address the recession.
- The stock market is signalling that this recession will last longer than the average duration of past recessions, seeing how the Fed’s cure is not having the effect it used to on interest rates.
- One scenario alone can give stock markets a sustained lift. They need to be able to glimpse the end of the recession in a not too distant future. For this to happen, however, both mortgage and corporate rates must drop sufficiently to allow monetary policy to act on the real economy as it normally does.
