U.S. Stocks Plunge After Federal Reserve Uses ‘Bazooka,’ Investors Fear Jerome Powell’s Ammo Has Run Out

Both the S&P 500 and the Dow Jones stock indexes crashed further after opening on Monday morning, falling so far that a circuit breaker kicked in to temporarily halt trading, as investors fear the Federal Reserve has used up all its ammunition and it is still not enough.

As the coronavirus pandemic suffocates the global economy, the Fed announced on Sunday its second emergency cut to its interest rate target, this time to near zero, and launched a quantitative easing program worth $700 billion to keep credit flowing during the turmoil.

A global recession looms as efforts to combat the virus, such as lockdowns and quarantines, leave businesses shuttered and people stuck at home. As the pandemic worsens, these measures tighten and further choke business and consumer activity.

Both the S&P and Dow Jones were down by more than 9 percent in early trading the day after the Fed moved, wiping the gains made during Friday’s rally. Stock markets elsewhere across the world, including the U.K.’s FTSE 100 and France’s CAC 40, were also sharply down.

“They basically used the bazooka yesterday,” Peter Berezin, chief strategist at investment advisory BCA Research, told Newsweek. “I think the reason the markets sold off is because investors adopted the narrative that if this is the best you can do it’s not good enough, and now that you’re out of ammunition we’re screwed.”

Berezin said he gives Fed Chairman Jerome Powell “full credit for acting quickly and decisively” but there is a limit to what the central bank can do.

“Right now the burden has to fall on fiscal policy to prevent what will certainly be a deep recession from what will be even deeper,” Berezin told Newsweek. “It’s unclear what’s going to happen but it’s not unclear what should happen.”

He said there should be no concerns about debt sustainability around fiscal stimulus that increases the federal budget deficit because interest rates are below the growth rate of the economy. Deficit-expanding fiscal stimulus is urgently needed.

“So if we end up in a deep recession I don’t think you can blame the virus,” Berezin said. “I think you have to blame policymakers for being so shortsighted and incompetent that they allowed what was obviously a major shock to the economy to morph into something that could have been completely avoided, which is a prolonged period of high unemployment.”