To avoid the Federal Reserve Bank having to intervene to rescue the economy, that's why. But, too late.
The Fed dropped its benchmark interest rate to 0% this afternoon and will restart QE with $700 billion in Treasury and mortgage security purchases. It knows tomorrow is going to be rough.
The reason isn't to boost the stock market, though there is no doubt they hope that would be a happy by-product of their action.
Because economic activity has dived with all the cancellation going on in order to stop the virus from spreading, there is extreme pressure on overnight funding markets which businesses use to fund their operations. Their income has tanked but they still have bills to pay. Borrowing in the funding markets is critical for the survival of far too many companies. The addition of so many more entities having to go to the funding markets than is usual, and in larger quantity, under these new and dire circumstances means money markets will not have enough liquidity to meet these new demands. So, the Fed will step in to keep things well lubricated.
That's it.
This could have been avoided if Trump had simply shutdown the country on Feb 1 like Xi Jinping shutdown Hubei on Jan 23. China is over the hump on the epidemic there because it acted early to contain the infection. We are just getting started, and unfortunately we are looking more like Italy than South Korea. The virus was still capable of being isolated here on Feb 1. Since then it has spread everywhere because we foolishly permitted travelers to come and go, creating hot zones everywhere. Now it's payback time.
This is going to be really ugly unless Trump acts immediately to do what Fauci wants, which is a 14-day shutdown. People need to shelter in place for a few weeks.
You won't care about an economy in flames if you can't breathe because a killer pneumonia has you gasping for breath.
