Recaps · FOMC · 3 Mar 2020, 15:00 UK
The cut that scared markets
Two weeks before its scheduled meeting, the Fed cut rates by half a point to deal with the spread of the coronavirus. Stocks rallied for a few minutes and then fell hard. Bitcoin barely reacted. Twelve days later the Fed cut again, to zero, and that time Bitcoin moved a lot.
- Decision
- Tuesday 3 March 2020, 15:00 UK (10:00 in New York)
- Rate
- -50bp to 1.00% to 1.25%
- Type
- Unscheduled, first emergency cut since 2008 (Reuters)
- 10-year yield
- Below 1% for the first time (CNBC)
- Bitcoin at decision
- $8,747
The decision
The statement said "the fundamentals of the U.S. economy remain strong", but that the coronavirus posed "evolving risks" (Fed). Reuters wrote that traders had fully priced a 50 basis point cut at the scheduled meeting two weeks later, so the surprise was the timing. Powell said the Fed "saw a risk to the outlook for the economy and chose to act" (Fed transcript).
A rally that lasted minutes
- 1 15:05 UK: S&P 500 ETF about +2.3%
- 2 16:45 UK: Bitcoin's low, about 1% down
The S&P 500 ETF jumped +2.3% in five minutes and was -1.9% four hours later. CNBC reported that the Dow closed 785 points (2.94%) lower and the 10-year Treasury yield fell below 1% for the first time ever. Bitcoin rose about 1.7% on the first candle, was flat by 15:30 UK, and ended the hour at +0.06%. That ranks #77 of 80 Fed decisions in our data, among the quietest, at 0.1 times a normal hour.
| Market | 5m | 15m | 1h | 4h | 1w | × normal hour |
|---|---|---|---|---|---|---|
| Bitcoin | +1.49% | +1.01% | +0.06% | −0.28% | −8.04% | 0.1× |
| Ethereum | +1.73% | +1.06% | −0.19% | −0.92% | −9.67% | 0.3× |
| XRP | +1.07% | +0.67% | +0.04% | +0.07% | −8.35% | 0.0× |
Change from the 15:00 UK decision.
Why the cut backfired
Reuters quoted traders worrying that cheaper money could not fix the real problem, workers and consumers staying home. An emergency cut also tells markets that the central bank sees something serious. For stocks, that signal outweighed the cut itself.
Bitcoin's small reaction says something about crypto at the time. In early 2020 it was not yet trading as a macro asset day to day. That changed within two weeks. Bitcoin was -8.0% a week after this cut, and on 12 March it crashed with everything else. After the Sunday cut to zero on 15 March, Bitcoin moved 14.7% in the first hour. Comparing the two decisions shows how quickly a market's links to the Fed can change in a crisis.
Sources: release time and figures from the Federal Reserve's statement and target range (FRED DFEDTARU). Crypto: Bitstamp 5-minute candles; SPY/QQQ: IEX. No consensus forecasts are shown because they are proprietary; comparisons are with the previous release. “× normal hour” compares the first-hour move with the median move in matched quiet hours. How we measure it.