The Fed’s rate cut timing has proven to be a ‘huge mistake’ that ‘undermined confidence’.
The Federal Reserve was likely trying to boost confidence in the U.S. economy with its emergency rate cut of 50 basis points on Tuesday, but Moody’s Analytics Chief Economist Mark Zandi contends the impromptu action had the opposite of its intended effect.
“Cutting rates was the right policy choice, certainly the right thing to do, but doing it the way they did was a mistake,” Zandi told Yahoo Finance’s “The Ticker” on Tuesday, several hours after the Fed made its first decision on rates outside of a scheduled meeting since October 2008.
The Federal Open Market Committee released the unanimous decision at 10 a.m. on Tuesday, with Fed Chair Jerome Powell citing “evolving risks” due to the coronavirus, or COVID-19.
While stocks initially jumped on the news, a sharp selloff ensued with the Dow dropping more than 800 points by market close. In his interview with Yahoo Finance, Zandi attributed the selloff to the Fed’s unusual timing.
The Moody’s economist is not the first to question the Fed’s move to cut its target range to between 1% and 1.25% outside of a regularly scheduled meeting. Chris Rupkey, chief financial economist at MUFG Union Bank, said the surprise move looked “rushed” and “not properly considered.
“While a Fed interest rate cut will not solve the devastating human effects and related fear that the Corona-virus has created, from an economic perspective, even though it will not stave off headwinds to spending growth in the near term, it does help cushion the blow.
Zandi reiterated that the rate cut will help the U.S. economy, in part by boosting the housing market and aiding businesses that need to finance their operations in the short-term.
Yahoo / ABC Flash Point News 2020.