The Fed cut rates 75 basis points to the lowest target seen since the Fed began using this operating procedure. The reaction was swift with equities and bond higher and the dollar selling off. The Fed will use "all available tools" and do whatever is necessary to help the economy. The Fed was at 1% for less than 2 months and have made 9 cuts in the last 14 months and provided $1.4 trillion in emergency lending. The Fed said it will expand the lending if necessary. The only comparsion for this type of monetary policy is Japan.
Money market rates are tightening with all o this liquidity. 30-day CP and 1 moth LIBOR are at or below 1%. One year Treasury bills are at 45 bps and 3-yer Treasuries are at 88 bps. Treasury trading will soon become a one way bet.
Rel rates are negative because CPI is at 1.1% ex food and energy at 2%. The CPI monthly change was -1.7%. We are not in deflation but the most recent CPI numbers are showing large price drops.
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