The stock market took a last-minute dive after the Chairman of the Federal Reserve, Jerome Powell, made a public statement today. He said that the future of the economy is “highly uncertain” because there are some “significant downside risks.” He also stated that the economy is now worse than it had been at any time since the Second World War After making these statements, the Dow Jones dropped over 500 points, or 2.2%.
Powell also made it clear the Fed is not looking to move toward negative interest rates. He stated that, even though other countries are using negative rates to try and limit the economic damage from coronavirus, he thinks that the plan the United States is following economically is sufficient at the current time.
Government Now Buying ETFs
The last economic stimulus packages included money that the government would use to purchase ETFs. $75 billion was designated for this purpose and it will purchase them with a 10-to-1 ratio, ending up with $750 billion in funds. The fund management company BlackRock will be managing the money for the government and it will be used to buy ETFs focusing on corporate and junk bonds. Some corporations, such as Carnival Cruise Lines, have already been able to benefit from this money.
Oil May Return to Negative Values
Although not certain, the Commodity Futures Trading Commission provided a warning in a staff advisory. They gave a warning that there could be a return of negative prices for oil. The contract for June WTI is going to expire on May 19. The total amount of oil at Cushing, OK, which is the storage hub for Nymex futures, had declined by 3 million barrels in the last week.
News has come out of China saying that there has been another breakout of coronavirus in Wuhan and two other cities. China has responded quickly. The three cities have been sealed off. There have been 22 new cases that are linked. In Wuhan, all 11 million people are going to be tested. China has closed its borders with North Korea, where the infection may have originated. Russia’s cases are exploding and they now have more than 230,000 cases, and anyone entering China from Russia will have to undergo 35 days of quarantine.
This news, along with another outbreak of COVID-19 in South Korea and Europe has people being more reluctant to go back to work. While some Americans are going back to work, it seems like most are staying at home.
People Hoarding Money
After most people had received their stimulus checks, it did not result in the spending that it should have. Many people have decided to save as much of it as they could because of an uncertain future. With the next stimulus package now on hold – the Republicans say that they will not even consider it until after Memorial Day – middle and lower-class Americans are trying to save all that they can. It has gone from a hoarding of goods mentality to a hoarding of money mentality. Unfortunately, this is not what the economy needs for recovery. It needs people to spend and get money back in circulation.
Gold prices have been rising in value and have closed on Wednesday at $1,716.49 per ounce. Although not rising quite to mid-April prices, it has stayed around $1,689 or higher in May. The increase today is likely due to the negative report from the Fed and the growing possibility of a second wave of coronavirus.