Vanguard’s Chief Economist Labels Fed Benchmark Interest Rate Cut a ‘High-risk Bet’

By

Roger Aliaga-Diaz

Roger Aliaga-Diaz, Chief Economist, Americas for Malvern-based Vanguard issued the following statement regarding The Federal Reserve’s reduction of its benchmark interest rate by a half percentage point earlier today:

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[quote]

We believe the announcement by the Fed today to cut interest rates was premature given the lack of data suggesting a significant drag on the economy. The high uncertainty around the potential implications of the coronavirus warrant further assessment before taking action of such magnitude.

The nature of today’s announcement could send the wrong signal to market participants, including individual investors who are concerned with recent market volatility. This also creates uncertainty around the Fed’s framework for monetary policy decisions following market dislocations.

This is a rare measure last leveraged during the Global Financial Crisis in 2008. Based on the economic and virus-related data available today, we feel this is a high-risk bet. The Fed may find themselves in a difficult position should conditions deteriorate further, finding themselves required to act forcefully in the weeks ahead.

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With $5.3 Trillion under management, Vanguard is the largest provider of mutual funds and and the second-largest provider of exchange-traded funds (ETFs) in the world.

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