Wall Street sign Rick Tap

Photo by Rick Tap.

The Federal Reserve fired its last bullets to shore up the markets this past Sunday, March 15. Fed Chair Jerome Powell announced that the Fed had dropped its federal funds rate to zero, would be doing $700 billion in asset purchases (quantitative easing), and was eliminating reserve requirements for thousands of depository institutions. Historically, banks are required to keep 10% of their deposits in reserve.

Pam Martens and Russ Martens reported in Wall Street on Parade:

“One brave reporter on the Fed’s press conference…, which was held by telephone, asked exactly how eliminating reserves was going to help businesses and consumers. Howard Schneider of Reuters [asked], … ‘Did you get explicit agreements from [the banks] that this will go to customer finance and not something else?’ Powell made it clear that the Fed had not gotten any contractual guarantees from the banks.

How did Wall Street take the news? On Monday, the next day, the Dow Jones Industrial Average suffered its worst point loss in history, closing down 2,997 points. The Martens report in a separate article, this historic dive effectively erased all of the Dow’s gains of the last three years. The percentage loss — 12.93% — was the second worst in history, worse than the infamous Black Monday of October 28, 1929, when the Dow lost 12.8%.

On Tuesday, the Fed found another bullet and announced it would provide credit to the commercial paper market — the market in which lenders provide companies with very short-term, low-interest loans to cover inventory costs or accounts payable — something the Fed hasn’t done since the 2008 financial crisis. The move prompted a moderate market rebound as all three major U.S. indexes rose more than 4%.

[Read the first article]
[Read the second article]
[Read the third article]