US Stock Market Plunges Again Due to Fed Intervention... 'Central Bank Blew Up the Market'

Fed Embarrassed Despite Two 'Big Cuts'... Asian Markets Mixed, International Cooperation Ineffective
Gold Prices Also Fall... No Exception for Safe-Haven Assets

[Image source=Reuters Yonhap News]

[Asia Economy New York=Correspondent Baek Jong-min] "Central banks blew it." - Bloomberg News

The central banks of various countries, including the U.S. Federal Reserve (Fed), have seriously lost face. Despite deploying all measures such as international cooperation for interest rate cuts, quantitative easing, and dollar swaps the previous day, global stock markets collapsed helplessly.

On the 16th (local time) at the New York stock market, the Dow Jones Industrial Average plunged by a staggering 13% (about 3,000 points) compared to the previous trading day. The Dow, composed of 30 giant blue-chip stocks, closed at 21,188.52, down 12.93% (2,997.10 points). The Standard & Poor's (S&P) 500 index fell 11.98% (324.89 points) to 2,386.13, and the tech-heavy Nasdaq index dropped 12.32% (970.28 points) to 6,904.59. The Dow's decline was the largest single-day drop since Black Monday in 1987 when it fell 22%, and it was the second worst in the 124-year history of the Dow Jones index. The U.S. stock market crash began to have a domino effect on Asian markets the following day, the 17th.

In particular, the Fed was further humiliated as it failed to exert any influence despite two 'big cuts' (large-scale interest rate cuts). Harsh expressions even emerged, stating that monetary policy was ineffective against the uncertainty brought by an unknown adversary, the 'virus,' rather than a financial crisis. Michael O'Rourke, Chief Market Strategist at JonesTrading, said, "The Fed is gripped by panic, and the market is trembling with fear," adding, "In the end, all that remains is the Fed pouring out its ammunition and the fearful actions of central banks."

The spark of fear has spread even to safe-haven assets, increasing market anxiety. At the New York Mercantile Exchange, April delivery gold fell 2.0% ($30.20) to $1,486.50 per ounce. Gold prices had surged to their highest level in seven years during the early stages of the COVID-19 crisis but, after a 9% drop last week, fell further on this day, erasing all gains made this year.

The market situation on this day is analyzed to be stimulating fear because it contradicts conventional economic formulas. A drop in U.S. interest rates typically leads to rises in stocks and gold prices. It has been considered natural for the dollar's value to decline and for oil prices to be supported, but none of these formulas are holding true. Bloomberg News cited experts saying, "Investors who suffered losses in the market are selling gold to secure liquidity."

So far, the Fed has appeared during economic and financial crises, and the market has complied. Former chairs Paul Volcker, Alan Greenspan, and Ben Bernanke were such figures. U.S. media described Fed Chair Jerome Powell as a "non-economist Fed chair" following the stock plunge on this day. Powell is a law school graduate. There is an interpretation that the Fed's humiliation stems from the chair's background.

Paul Krugman, Nobel laureate and professor at the City University of New York, warned in a New York Times op-ed on this day, "During the 2008 financial crisis, the Fed's interest rate cuts were five times larger than now," adding, "With current measures, we will face the most severe recession since the Great Depression." Krugman said, "Fiscal measures are needed to overcome the current situation, but the Trump administration lacks the capability."

Ray Dalio, founder of the world's largest hedge fund Bridgewater, also pointed out, "The Fed has done everything it can," emphasizing that now fiscal policy from the federal government is necessary.

This content was produced with the assistance of AI translation services.