On Monday, the S&P 500 market was down 12% and the Fed lowered interest rates to zero percent. Do you fully understand what the 0% interest rate means for your Money?
5 Key Takeaways about the Fed’s Emergency Measures
The Federal Reserve announced several emergency measures on Sun. eve in a special meeting.
We learned during the Financial Crisis that emergency Sunday meetings are NOT a good thing with financial markets! Instead of an announcement of measures over days, the Fed decided to announce several measures at once. This decision seemed to be one to group measures together so we cover up the underlying risk. (It didn’t work!)
Fed lowered interest rates from 1% to 0%.
The Fed lowered rates to encourage more economic activity. Although you will not receive much interest on your cash, does this mean you are able to refinance? Yes! 0% rates are a GREAT time to refinance your mortgage and/or student loans. The last time rates were this low was 2015. It may take a few days to reflect in rates, but this is a great time to check on potential rates (and potential fees).
The Fed also announced $700B in liquidity for the Treasury market and the MBS market.
The Fed announced this measure as a result of problems with liquidity in the market last week. The Treasury market is the largest market for trading and requires efficient liquidity for the full functioning of our financial system. Yes, it is that important!
Due to the massive amount of selling last week, the market experienced limited liquidity in markets with short-term investments. The Fed understands that a liquidity crunch in 2008 was one of the key causes of the Financial Crisis, so the Fed took decisive action. However, since the Fed felt compelled to add this huge amount of liquidity, this measure may be viewed as a signal of underlying market risk.
Instead of boosting US markets, the Fed’s emergency measures were not well received.
The US market today opened down 8% and the circuit breaker was triggered again for a 15-min halt in the US markets. The US markets reflected the fear of a liquidity crunch just weeks into the US invasion of the Corona Virus Crisis. The Corona Virus is still spreading and the market loss reflects the ongoing economic uncertainty. Both US markets were down 12-13%, the worst decline since 1987.
Do I need to think about selling?
When there are dramatic moves in the market, stay calm and stick to your Financial Plan.
In case you would like to learn more, including live videos, feel free to join my Wealthy Warrior Women group on Facebook. I created two videos today and three videos last week.
If you need a Financial Plan, please reach out and schedule a call. It is critical to have a Financial Plan during these challenging times so that you have peace of mind and focus on a long-term time horizon.
When financial markets have dramatic moves, stay calm and stick to your Financial Plan.
Kelly Gushue is Founder & CEO of www.PersonalFinanceWarrior.com. She empowers women all over the world to invest & take action on managing their personal finances through her online courses, coaching & speaking events.
Kelly has worked in several areas of finance including Portfolio Construction, Investment Management & Investment Research. She holds an AB from Harvard College & an MBA from the Booth School of Business at The University of Chicago.
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