Waiting on Fiscal Policy as Aggressive Fed Move Falls Flat

The FOMC surprised the markets for the second time in two weeks, this time with a 100 basis point inter-meeting cut on Sunday afternoon, effectively bringing the overnight rate target to zero. In addition, the FOMC reduced the interest on excess reserves (IOER) to 0.10% and will no longer require banks to adhere to a reserve requirement. The Fed is hoping banks will use freed-up capital to increase lending. Fed officials also slashed the discount rate from 1.75% to 0.25% (a new record low) and encouraged any bank facing short-term funding needs to access the discount window.

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