The market’s disregard for the Federal Reserve’s emergency interest rate cut doesn’t surprise Josh Brown, who called the decision “ill thought out.”
“This is to make people feel better. OK, fine. So then do it the right way, don’t just drop it out at 10 a.m. when no ones paying attention,” said Brown, CEO of Ritholtz Wealth Management on CNBC’s “The Halftime Report.” “If you want it to have a psychological impact then make it meaningful, do it with some bombast, this was very ill thought out, I don’t know what they felt they needed to do it right this minute.”
The Fed announced a surprise rate cut Tuesday morning, lowering its benchmark funds rate to a range between 1% and 1.25%, in response to the growing economic threat from the coronavirus. “The coronavirus poses evolving risks to economic activity,” the Fed said in a statement.
Markets had been widely expecting the U.S. central bank to take some type of action at the FOMC’s March meeting, but Tuesday’s sudden announcement still came as a shock to investors. After a brief jump in stocks, the major averages sold-off, and bond yields plunged. The Dow Jones Industrial Average dropped nearly 800 points, and the S&P 500 and Nasdaq fell more than 2.5% each.
The 10-year Treasury yield fell below 1% for the first time ever, dropping to a record low 0.997% on Tuesday.
“Look what treasuries did before the Fed opened its mouth to say that they will act and look what their doing once they did act. So you already have a rate cut in place, it already exists because of market conditions,” said Brown, who though market’s were actually in good shape coming into the day.
Fed chair Powell said the cut will avoid a tightening of financial conditions, and help boost consumer and business confidence.
“I actually don’t think it will boost business confidence. I think business confidence is a blip on your screen everyday and what you’re looking at is the market having already given itself a rate cut,” said Brown.
Brown also noted that financial conditions are already easy, citing the fact that a year ago you could finance your 30-year mortgage at 4%, and now a 15-year refinancing option is under 3%.
“Why financial conditions need to get easier in that environment makes absolutely no sense in terns of combating what is sure to be weeks and weeks of negative headlines,” said Brown.
Brown said the biggest downside of slashing rates is the Fed’s inability to raise them anytime soon.
“You cannot give it back. You are never raising rates in an environment like this for the foreseeable futures,” said Brown. “Unless there’s some massive fight with inflation, in which case we have bigger worries.”
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Brown said the market’s weren’t in bad shape coming into the day, but the cut was confusing to investors.