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📷This week on “Axios on HBO”: Rep. James Clyburn, the Democratic “kingmaker” largely credited for Biden’s surge, warns the U.S. "could very well go the way of Germany in the 1930s" (clip); plus much more. Tune in Sunday 6 pm ET/PT on all HBO platforms.
🎙“Learning music by reading about it is like making love by mail.”- See who said it and why it matters at the bottom.
Illustration: Aïda Amer/Axios
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.
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."
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.
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.
Overseas stocks performed even worse than the U.S. on Thursday.
The big picture: The losses are mounting because there has not yet been a coherent global policy response and perhaps, more importantly, nothing from the world's largest economy, analysts say.
Finance ministers from the Group of Seven rich nations reiterated a pledge to use "all appropriate policy tools" to respond to the coronavirus outbreak, but offered no concrete steps or proposals. (Reuters)
Chinese auto sales fell 79.1% last month compared to the same period last year, with just 310,000 vehicles sold nationally as demand was pummeled by the COVID-19 outbreak. (WSJ)
Saudi Arabia has stepped up its push to squeeze Russian oil out of key markets by offering its own cheap supply, sources said. (Reuters)
Longer-dated U.S. Treasury yields have bounced higher in recent days, with the benchmark 10-year note fully reversing course and rising to more than double its lowest level on Tuesday.
What's happening: The announcement of $1.5 trillion in repo injections on Thursday by the New York Fed followed two announcements about increasing the amount of cash it was injecting in its repo operations this week. The deluge has given yields a significant bounce.
By the numbers: Yields on the 10-year Treasury note rose as high as 0.91% Thursday, 60 basis points higher than the low touched on Monday. Yields on the 30-year bond similarly jumped, touching a high of 1.50%, up 80 basis points from Monday's low of 0.70%.
The Fed's actions on Thursday appear to have had a significant impact on the bond market and the currency market, where the dollar has reversed its slide against most major currencies after touching monthslong lows earlier this week.
Where it stands: The inability of Congress and the White House to deliver on a fiscal stimulus plan has not come as a complete shock to most observers. And if they aren't able to get it together, the Fed is not completely handcuffed, analysts say.
What they're saying: Julia Coronado, president of MacroPolicy Perspectives, points out that the Fed could invoke what it terms "unusual and exigent circumstances" and begin accepting things like corporate bonds as collateral for cash.
Plus, banks have called for the Fed to roll back regulations and they are listening, Vincent Reinhart, a former Fed researcher and current chief economist at Mellon, tells Axios in an email.
The big picture: Central bankers and economists have argued forcefully over the past year that "Unprecedented policies will be needed to respond to the next economic downturn," as members of the BlackRock Investment Institute put it in August.
The intrigue: The paper called on policymakers to introduce "helicopter money," which would essentially mean central banks giving money directly to the public.
Why it won't' happen: Helicopter money would mean the Fed taking the extraordinary step of going over the head of America's duly elected politicians to take action.
Quote: "Learning music by reading about it is like making love by mail."
Why it matters: Luciano Pavarotti said the quote above. The famous tenor performed in his last opera, "Tosca," at the New York Metropolitan Opera on March 13, 2004.