Preparing for Recession
Wall Street plummeted last Monday, and with the United States now dealing with one of the most abrupt halts in economic activity in history. Markets opened with the S&P 500 down 8.14% (220 points), the Dow Jones opened down 2,250 points (9.71%), and the Nasdaq was down 6.12% (482 points). The lack of consumer spending is making the hit hard to fight.
Wall Street closed trading almost immediately after markets opened. The S&P 500 would have to drop 13% to halt markets again and a drop of 20% would stop trading for the day.
As of 11:30 a.m. CDT, the Dow rebounded to be down 8%, the S&P 500 was down 7.54%, and the Nasdaq was down 7.5%.
“The problem is everyone in America is cutting back their consumption,” Jason Furman, who led the Council of Economic Advisers during the Obama administration, told Washington Post. “A lot of sectors are being hit, especially the services sector. A lot of income and spending is being reduced. That’s just an enormous shock to the economy.”
Unlike the Great Recession, this downturn is the result of a completely external factor, meaning that it is possible this downturn will be much shorter and shallower, according to Louise Sheiner, Economic Studies Policy Director, The Hutchins Center on Fiscal and Monetary Policy.
“It is worth remembering that in the early days of the housing market downturn, many of us thought that the problems would be limited to the subprime mortgage market and wouldn’t be macroeconomically important. We were very wrong,” she notes.
CNBC reported that mortgage rates are expected to fall again following Sunday’s announcement by the Fed.
Additionally, the Fed announced that over the coming months that it will increase its holdings of Treasury securities by at least $500 billion and its holdings and agency mortgage-backed securities by at least $200 billion.
"The Committee expects to maintain this target range until it is confident that the economy has weathered recent events and is on track to achieve its maximum employment and price stability goals," said the Fed in a statement.
Odeta Kushi, Deputy Chief Economist at First American, said the Fed's actions should help bolster the mortgage market and keep rates low.
“This echoes 2008 when the Fed’s mortgage-backed securities buying spree increased demand for mortgage-backed securities at a time when investor demand was faltering. This, in turn, helped push mortgage rates down, enabling homeowners to lower monthly payments and encouraging investment in housing," she said.