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While the February employment report shows significant economic strength, this has rightfully taken a back seat to the Coronavirus outbreak and the consequences for everyone’s health and the world economy as a whole. 273k new jobs were created versus expectations of 175k jobs. Additionally, the previous month’s data was revised upwards by 48k. The February unemployment rate fell to 3.5%.
The Dow Jones Industrial Average reached a high on February 12th of 29,551. By that and many other measures, the economy was exceptionally strong, and the Fed would likely keep the target federal funds rate unchanged for the foreseeable future. However, the continuing spread of Coronavirus worldwide gave rise to fears of a viral pandemic and an economic downturn. Institutions have responded to the crisis by halting all but essential travel in an effort to slow the spread of the virus. This has led to cancellations of business conferences, music concerts and many individual vacation plans. Corporations have begun using emergency back-up sites and splitting up staff to prevent the spread of Coronavirus.
In response to the stock market volatility, the FOMC did an emergency intrameeting 50 basis point rate cut on March 3rd to a range of 1.00% to 1.25%. While the FOMC acknowledged that lowering interest rates will not solve the current crisis it does signal that they stand ready and able to support the financial industry and keep the banking system functioning properly. Continued uncertainty has led the market to expect additional cuts in the federal funds rate in the near term.
As we are still in the midst of the crisis it is unclear what the resolution will ultimately be. Given the uncertainty, we will continue to adhere to our long-held conservative credit philosophy while maintaining appropriate levels of liquidity.
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