Insights

Fed Cuts Rates to Zero – Economic Implications

Clearly the swiftness of the spread of the health crisis has overwhelmed the expectations and abilities of policymakers, and citizens alike, to cope with in any kind of normal way. As a result of the massive compression of economic activity, there will no doubt be an economic recession of some form and fashion. 

No recession is pretty. No recession feels good. But recessions, however caused, are an inevitable and necessary part of a continuing capitalist-based economic process. This particular version is a massive ‘growth scare’,  and it is only that. It is not a financial crisis. There is ample liquidity in the banking system.

For investment portfolios, this limits the result to being a classic bear market just as if the Fed raised rates to combat widespread inflation.  No bear market is pretty and no bear market feels good. But, as with recessions, bear markets are inevitable and are necessary to ensure the long term ability of the financial markets to deliver appropriate returns for long-term investors.

This bear market will likely continue to happen with incredible speed since so much of Wall Street trading is done by computers in the the high-octane trading community. The too-soon-to-act-upon result will be a completely re-booted stock market that can be taken advantage of by those who persevere through the chasms and stayed disciplined and committed to their investment strategy.

The True Purpose of a Bear Market is to Return Wealth to its Rightful Owner – or put another way – the investors who stay true to their long-term objectives and do not take excessive risks will be fine.

 

Published on: 03.16.20

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