Powell and The Fed must be getting all kinds of heat to lower rates yet again

[Yavin4]

Problem is, rates are already low. They can go to zero again. They can also do QE. They can even go to negative interest rates.

But zero rates coupled with the threat to global supply chains, we would run the risk of hyper-inflation.

[unblock]

1. I don't see hyper-inflation happening

Not with a global contraction.

If they cut rates a lot and the covid-19 disruption turns out to be minor and they don't reverse themselves on rates quickly, then yeah, maybe.

But serious inflation hasn't been a serious threat for a long time and I don't see the looming global recession as triggering it

[Wounded Bear]

2. They probably should have been raising rates over the last 2-3 years...

but Trump was pressuring the Fed not to. He's not really supposed to do that.

Raising rates might have eased some of the inflationary pressures on prices, while pre-loading the rates to allow the cuts when needed, like now. Now we have real estate bubbling again, a huge looming problem with education loans, and a falling market. Yeah, they could cut rates, but how much overhead do they have there?

Coronavirus will probably have a huge negative effect on quarterly dividends, triggering more sell offs.

I think we're finally getting our Trump Slump. I don't think they can happy talk their way out of it.

[ooky]

3. If investors are spooked by the interruption of supply chains (which they should be)

another cut in already extremely low interest rates isn't going to alleviate that fear.

The real issue then is a back up of manufacturing inventory and unused capacity and how long that condition remains. These are conditions, along with the lost sales, of course, which make company performance metrics and shareholders numbers look really bad. And that fear can drive a lot more selling than we have seen so far.

But hopefully it's also short term, which helps, unlike the 2008 crisis which saw factory demand drop by half and dry up for an extended period. Once the supply chains get going again capacity will fill back up and inventory will normalize and there will be some nice backlogs to be filled. Interest rate cuts are unnecessary under those conditions also.