MNI POLICY: Bullard: Fed Not Cornered By Market For March Cut

By Evan Ryser

     WASHINGTON (MNI) - St. Louis Fed President James Bullard downplayed the

need for a rate cut to deal with coronavirus damage to the global economy,

saying market reaction is exaggerated and coordinated central bank action may

have little benefit.

     The Fed doesn't need to follow markets fully pricing a rate cut, Bullard

told reporters. "I wouldn't want to pre-judge the March meeting. Obviously, the

situation is very fluid and we're going to want to monitor events right up until

the meeting," Bullard told reporters Friday.

     "Markets might be overestimating the probability of a global pandemic," he

said. "Baseline case is still that we will bring the virus under control and the

market pricing will start to retrace."

     "There is some serious downside risk here," he said, adding analogies to

the 2008 financial crisis aren't useful. "Obviously investors are very worried

about this and they're pricing in a debilitating global pandemic. But I would

encourage everyone to ask themselves, is that really the bet you want to make

that this is going to be a global debilitating pandemic?"

     Asked about the potential for an emergency intermeeting cut, Bullard said:

"The Fed has in the past sometimes met out of sequence. I don't have a sense of

whether that's the right thing to do here because you've got a very fluid

situation and it could turn around very quickly." 

     Plunging stock and bond markets have changed the conversation around the

need for central bank stimulus this week, even after the biggest wave of cuts

last year since the global financial crisis to prop up growth threatened by

trade disputes. Bullard told reporters that is probably best for each country or

central bank to react appropriately and different countries will have different

responses depending upon local circumstances. 

     "Whether the various jurisdictions would take action in a matter of days or

weeks or whether they did it all on the same day, I don't think that there's any

economics that says that really matters very much," Bullard said.

     Bullard said he would support looking at other tools to support liquidity

or looking at the discount window, but it would still depend further

deterioration.  "I don't want to give the impression I'm just against taking

action. I just think that the data ... could be different for different

countries," Bullard said.

     "Each country may want to assess the situation differently. Asia in

particular would be more threatened and more exposed than probably other points

around the globe. You might expect a different response from those governments

in those central banks."

--MNI Washington Bureau; +1 202 371 2121; email: evan.ryser@marketnews.com

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