Rate Cutting and Hand Wringing

Equity markets are poised to open WAY down as Treasury bonds are trading WAY up. Yesterday’s unexpected, by some, rate cut by the FOMC puts the policy rate back to the Zero-Bound. In addition, the central bank pledges to buy $700B of bonds. The move was intended to calm jittery and volatile markets. Some think yesterday’s moves smack of desperation and will only add to the panic-mode psychology of many market participants. Further efforts to make sure funds keep flowing were effected by the elimination of the Reserve Requirement effective March 26. Our fractional reserve system will be going to a no-reserve system. The week’s first tidbit of data has already come out and we learned that the New York Fed’s Empire Manufacturing Index plunged to negative 21.5 from 12.9. This won’t be the last ugly number, but this won’t last forever.