Congress Sits On Its Hands

By Nicholas Jasinski |  Monday, March 23

Where's the Urgency? Stocks whipsawed today, as investors awaited a multi-trillion economic-rescue package still being debated in Washington. 

Motions to proceed to a vote on the bill failed on Sunday evening and this afternoon. Debate on the floor of the U.S. Senate turned increasingly partisan—at a time of great need from Americans affected by the novel coronavirus outbreak and the unprecedented shutdown required to slow its spread.

Republican senators accused Democrats of holding up a vote on the bill until they could insert a wish list of liberal priorities. Democrats argued that Republicans knew the bill wasn't finished, without sufficient transparency or guidelines for where hundreds of billions of dollars of stimulus funding would end up. They said that Senate Majority Leader Mitch McConnell was scheduling the motions just to get their opposition on the record to score political points against them.

In the meantime, small businesses are closing, employees are being laid off, health-care workers are overwhelmed, and confirmed cases of the coronavirus continue to escalate rapidly.

About two miles away from the Senate chamber, the Federal Reserve kept busy today. Early this morning, it promised to buy unlimited amounts of Treasury and mortgage bonds, and unveiled lending facilities to support stressed consumer debt and corporate credit markets. The moves are further measures meant to smooth out market functioning across multiple assets and support the economy.

Since the start of March, the Fed has dropped interest rates to near zero, bought hundreds of billions of dollars worth of bonds, launched multiple lending facilities, stepped up its daily overnight repurchase operations, and opened dollar-swap lines with more than a dozen central banks around the world.

Compared with getting congressional lawmakers to agree on how to spend close to $2 trillion, presumably it's easier for Fed Chairman Jerome Powell to hop on a conference call with the Federal Open Market Committee and tell the officials present that no one is leaving until the committee has responded.

But monetary policy alone won't save the U.S. economy, provide necessary aid to Americans out of a job due to no fault of their own, or make the country's medical system better prepared to combat the spreading coronavirus outbreak.

Coming off their worst week since the depths of the financial crisis in early October 2008, stocks fell to their lowest levels of the day in the half-hour before today's close, as the bickering on the senate floor continued. The Dow Jones Industrial Average closed down 3%, the S&P 500 lost 2.9%, and the Nasdaq Composite slipped 0.3%. All three indexes have dropped a third in barely a month.

U.S. Treasury bonds jumped sharply higher today after the Fed's promised open-ended purchases. That made their yields, which move in the opposite direction of their price, fall. The 10-year Treasury note’s yield dropped 17 basis points, or hundredths of a percentage point, to 0.771%.

And the price of gold jumped 5.2%. Gold tends to rise when investors are shedding risk, and when yields available elsewhere fall. The opportunity cost of holding the metal is lower.