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March 18, 2020 at 03:36 PM
If the current economic crisis gets much worse, we may have to stop discussing the possibility of a recession and instead start worrying about it leading to something even worse, according to Danielle DiMartino Booth, CEO and chief strategist for Quill Intelligence and a former advisor to the Federal Reserve.
Stock indexes closed down more than 5% on Wednesday; the S&P 500 tumbled 9.8% before recovering in afternoon trading. The yield on 10-year Treasurys rose 14 basis points to 1.21% (prices fall as yields rise), and oil dropped 24% to an 18-year low.
Asked by Hedgeye CEO Keith McCullough during a webcast Wedesday what happens when stocks and Treasury bonds “go down at the same time,” DiMartino Booth replied: “Aren’t we witnessing that today? What happens? I mean what happens is you start to get rid of the recession vernacular and you start to introduce a different word into the vernacular that starts with a D and it’s not my name.”
Earlier in the webcast, “Market Carnage: What May Come Next,” she said now that U.S. jobs are expected to be lost in large numbers and the Fed already slashed the federal funds rate to between zero and 0.25%, “this is unfortunately when the Fed has to do what it’s not been able to do for generations and step back and say, ‘You know what? Our tool kit’s empty.’”
“This is a national emergency in the private sector,” she said, adding that “because D.C. dragged its feet for as long as it has, there are rumblings out there about whether or not this is going to be a recession or something worse.”
As it stands now, she expects Fed Chairman Jerome Powell is “willing to do whatever it takes to prevent this credit market from completely imploding under its own weight, but we have to remember that this involves Congress,” she said.
She predicted the Fed will be forced to try and push for changes to the Federal Reserve Act so it can buy stocks. “If this is not a V-shaped recovery … if you think it’s even going to be an L-shaped recovery, given that the Fed has already used so much of its ammunition already, I think reopening the Federal Reserve Act is definitely one of the steps in the process in order to give the Fed the same legal authority” that the Swiss National Bank or the Bank of Japan have, she said.
