Fed’s Limbo Rock: Powell Rejects Negative Rates As A Policy Tool As Taylor Rule Suggests A Negative Target Rate Of -13.52%

Fed Chair Powell rejects using negative rates as a policy tool.

Speaking of Powell’s proclamation that negative rates are not appropriate for the US, the Rudebusch (SF Fed) specification of the Taylor Rule says that the Fed Funds target rate should be -13.52%.

That represents a spread of 13.77% over the current Fed Funds Target rate of 0.25%, the largest disconnect since 2000.

Apparently, Powell has gone as low as he will go.

Economists at the University of Chicago estimate that more than two-thirds of the workers on unemployment insurance are making more in jobless benefits than they did at work.  Some are even hauling in two to three times as much.

US Q1 GDP Sags To -5% QoQ Annualized As Virus Lockdown Helps Crush Economy (Corporate Profits Shrink 14% In Q1)

Oof.

US GDP growth QoQ annualized plunged to -5% in the first quarter. Still not to the depths of The Great Recession (aka, housing bubble burst and ensuing financial crisis).

But you ain’t seen nothing yet.

The Atlanta Fed GDPNow estimate for Q2 GDP is -41.907%.

Why will Q2 look like a disaster? Take a peek at April’s preliminary durable goods orders: down -17.2%. Take out transportation and the decline is “only” -7.4%. In other words, the print (actual) are lower than the surveys. And while jobless claims clocked in at 2.12 million, it is the first decline in jobless claims so far.

Corporate profits shrank by 14% in Q1.