S&P futures are limit (5%) down this morning, meaning no trade can occur pre-market opening that is not above the 5% down, and one ETF that tracks the S&P 500 is down 9%, indicating the bear market is still alive and well. This despite the Federal Reserve bringing out the big guns on Sunday by taking the Fed Funds Rate to zero* and committing to buy $700B more in assets to its balance sheet. This is on top of its ongoing bond buying to provide market liquidity. Yet markets are still limit down this morning.

“The coronavirus outbreak has harmed communities and disrupted economic activity in many countries, including the United States,” the Fed’s rate-setting committee said in a statement Sunday. “The Federal Reserve is prepared to use its full range of tools to support the flow of credit to households and businesses.”

One of the classic criticisms about monetary policy in the Great Depression is that monetary policy is like pushing on a string–you can use it so slow the economy down but can’t push on it to get it going. While I disagree with this criticism (which was effectively destroyed by Milton Friedman and Anna Schwartz’s Monetary History of the US), it may have validity in this case. We are not talking about a collapse in Aggregate Demand due to animal spirits–we’re talking about government orders to close restaurants and vast amounts of economic activity. It’s foolish to think the Fed can print our way out of this. The bottom line is that there is an immense amount of economic activity that we are going to lose as we go through this global response to a pandemic. That loss is going to be reflected in reduced asset values, and there is not much the government can do about it, nor should they really try. That doesn’t mean there isn’t a need for monetary policy adjustments in the face of the reduced economic activity, but rather it shouldn’t be done to prop up markets, because that isn’t going to work.

Meanwhile Mr. Trump continues hammering the Fed for its “restraint.” It’s not surprising that someone involved in real estate his whole life would think that low interest rates are always good and necessary, but his implicit threat to remove Jerome Powell is the kind of thing we associate with banana republics, not in a country where we are supposed to have an independent monetary policy. Mr. Powell works for the American people, not Mr. Trump–he is not part of the executive branch of government.

Trump said he is not yet looking at removing Jerome Powell as chairman, though he believes he has the right to do so. He has harshly criticized Powell previously, saying the Fed should be more aggressive in easing the stance of monetary policy. “I have the right to remove him. No, I’m not doing that,” Trump said. “I also have the right to put him in a regular position and put someone else in charge, and I haven’t made any decisions on that.

Nevertheless, Mr. Trump was pleased with the Fed’s Sunday cut, calling it “terrific,” and good for America. Yet candidate Trump endorsed a gold standard, and with gold price rising markedly during his tenure, interest rates should rise and not fall. But what is that line from Emerson? Consistency is the hobgoblin of small minds? It seems like Mr. Trump’s monetary policy is whatever keeps the stock market up to help me get re-election. As usual, I have a different suggestion. How about instead of Jerome Powell deciding on the interest rate, or Mr. Trump, how about we stop the socialism and let markets determine the interest rate?

Finally, I think that while this is going to be an ugly few months, on the other side of the virus I expect an explosion of economic activity as pent up demand, coupled with an expected global stimulus effort, is going make the summer hot. Mr. Trump and every other incumbent politician will want the economy doing well going into November.

* Range is set between zero and .25%