Economics Weekly: Still Searching for the Floor and Fed Plays Whack-A-Mole

Friday, March 20, 2020

It has been a roller-coaster week in the financial markets, with volatility reaching never before seen levels (for example, the VIX Index reached 82.7, its highest since 1990 and beating 2008's 80.9); fear has been chasing panic and panic chasing uncertainty, with the result that investors have preferred to shoot first and ask questions later. The unfortunate reality is that they have been flying blind, where there has been a huge gap between the unknown scale of the problem—and therefore the scale of the policy response required to solve it—and what might ultimately represent a floor from which a recovery can start to rebuild. The result has quite naturally been exceptionally high levels of volatility, which are likely to continue for a little while yet before dying down.

In this Economics Weekly, we discuss the Fed's response to the crisis and how it is acting with speed and force to bridge that gap between the unknown and the known, but there is still more that needs to be done.

For a copy of this report or to subscribe to the Economics Weekly or Economic Indicators reports, please contact your William Blair representative.

Richard de Chazal, CFA is a London-based macroeconomist covering the U.S. economy and financial markets.

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