The Fed has clearly gotten the message being sent from financial markets — "OMFG!!!" — and has acted accordingly.
State of affairs: The U.S. central bank is responding to the COVID-19 outbreak as if the country is in a crisis, first by declaring an emergency 50 basis point rate cut last week, and on Thursday by announcing $1.5 trillion in injections to the systemically important repo market, on top of already increased funding injections.
- Congress and the White House are not on the same page and have committed what one former Fed official called "gross negligence" with their response so far.
Why it matters: A recession is starting to shift from possible to overwhelmingly likely with the only question being how bad things will get.
What's happening: "At best the Fed can buy time in the markets and put a floor in the selloff, but a fiscal response is required," Nela Richardson, investment strategist at Edward Jones, tells Axios. "This is a biological event. This problem did not start in the financial markets and the solution won't be found there."
- Danielle DiMartino Booth, CEO of Quill Intelligence and a former adviser to the Dallas Fed, is expecting "crisis era" policies from the Fed, but Thursday's market selloff — the worst since 1987's historic Black Monday — shows just how limited the central bank is.
- "The Fed loaded and fired a bazooka and it was not a big enough shock to stanch the bloodletting in the stock and more importantly, credit markets," she tells Axios.
Between the lines: The wave of red on Wall Street — the S&P 500 has fallen 27% from its record high, set just weeks ago — is not an assessment of the economy, Jim Paulsen, chief investment strategist at The Leuthold Group, says.
- "There is no explanation for why the market is falling 5-10% a day," he tells Axios. "We’re not trading on any kind of reason or sanity, it’s just emotion and panic at the moment."
The bottom line: "The Fed will soon be largely sidelined," Mark Zandi, chief economist at Moody's Analytics, says in an email. "The onus for saving the economy from recession is now squarely on the Trump Administration and Congress to provide a large, timely and well thought out fiscal stimulus."
Asked how confident he is it would get done, Zandi echoed the response of most economists who have spoken to Axios since the market meltdown began.
- "Not confident at all. Recession is more than likely."