CIO Update: Fed takes action

Over the past weekend, the Fed made the decision to hold their policy meeting, scheduled for March 16, 2020, earlier than planned, and announced a number of measures designed to meet some of the challenges presented by the last several weeks. More specifically, the Fed lowered the federal funds rate to the effective lower bound of 0-0.25%, and announced several programs designed to loosen financial conditions for both households and businesses. The surprise cut of 100 basis points came quickly after the 50 basis point cut announced 10 days ago, and was approved by the majority of the FOMC members. In addition to announcing the cut, the Fed’s statement indicated that rates were likely to be low for an extended period of time, or at least until “realized and expected” conditions indicated stability in prices and employment.

The most significant component of the additional actions was a newly introduced bond purchase program, with planned purchases of up to $500 billion in Treasuries and $200 million in agency mortgage-backed securities slated to begin immediately. Equity markets, which were expected to trade lower to start Monday’s session after Friday’s significant rally, proceeded to fall significantly throughout the day, closing the session down -12% on the S&P 500 for the day. Despite the Fed’s clear commitment to provide support, monetary policy alone cannot ease the anxiety of the unknown economic impact likely to result from the spread of coronavirus.

We believe that a combination of unprecedented public health mandates – including a short term moratorium on social gatherings, encouraging work from home arrangements, and closing primary and secondary schools – along with significant fiscal stimulus for small businesses and workers, coupled with selective support for affected industries can help to cushion the blow of lower consumer demand in the weeks ahead.

Our view is that the second quarter will be a difficult one for companies as they grapple with lower revenues and an uncertain business environment. However, we also believe that the decline in demand we expect to see in the coming weeks does not represent demand lost. Employment going into this difficult time was at historical highs, and although we may see near term softness, we believe consumer demand is likely to re-accelerate in the mid-late summer, which should create a foundation for positive economic growth in the back half of 2020.

We remain focused on monitoring this situation and keeping you updated, as your trusted advisor our priority is helping our clients to navigate these difficult times. We understand that your attention is likely on the health and safety of your family, friends, and community, and as such, it is a critical time for us to remain diligent and disciplined in the care of your wealth. Please reach out to your SVB Private representative with any questions or concerns you may have.

Shannon Saccocia, CFA, CIMA®

Shannon Saccocia serves as Chief Investment Officer at SVB Private, and is responsible for setting the overall investment strategy for the firm. She oversees the asset allocation, research, portfolio management, external manager search and selection, portfolio implementation, trading, and investment risk management functions.

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