Three of the most influential voices on Wall Street weighed in on what the Federal Reserve still needs to do to calm financial markets after the U.S. 10-year Treasury yield fell below 1 percent for the first time ever on Tuesday after the central bank initiated an emergency rate cut to cushion the economy from the coronavirus outbreak.
Heavy buying following the decision pushed the benchmark yield to a record low 0.90 percent.
“The market is telling us right now they are pricing for another 25 basis point rate cut,” Scott Minerd, managing director and global chief investment officer at Guggenheim Partners, which oversees $270 billion in assets, told FOX Business’ Liz Claman on Tuesday. “I think ultimately we’ll probably get back to the zero bound.”
Traders agree with that assessment. Fed fund futures traded at the Chicago Mercantile Exchange show over a 51 percent chance the Federal Reserve will cut its key interest rate by another 25 basis points at its April 29 meeting.
Mohamed El-Erian, chief economic adviser at Allianz Global Investors, says policymakers have bigger issues. He told Claman the Fed “doesn’t have a tool that addresses the problem,” which is that people aren’t interacting with each other. As more businesses curb travel and quarantines rise, economic activity could slow.
Andy Brenner, global fixed income head at National Alliance Securities, went a step further, telling Claman what the Fed did today was a “disaster.” He says the market “needs unlimited liquidity” and that the Fed needed to couple the emergency rate cut with quantitative easing or “opening up the spigots.”
“The Fed didn’t do that second step and that is what has caused the lack of confidence,” Brenner said.
But according to El-Erian that’s exactly the problem. “Markets have become too greedy when it comes to liquidity,” he said.
As for how low yields can go from here, Minerd said the technical work that he did last week showed that the 10-year "would probably ultimately get to a quarter of a percent and the long bond would probably trade around 1 percent."