MNI POLICY: Ex-Fed Blinder: FOMC To Surprise With Next Cut

By Jean Yung

     WASHINGTON (MNI) - The Federal Reserve will likely aim to surprise markets

again with a faster or larger rate cut to maximize the impact on a U.S. economy

strained by the coronavirus, former Vice Chair Alan Blinder said Friday. 

     It's still unclear rate cuts are the best response, whereas government

health spending could have "enormous multipliers" to help people get back to

malls and restaurants, he added. 

     Markets cheered for only a short time after the Fed pushed through an

emergency 50bps cut Tuesday and soon turned down again. That raises the question

of whether the rate cut was futile when faced with a "hungry" market, Blinder

said. 

     "My guess is they will try to feed the beast again, surprising on timing or

announcing," Blinder told reporters on a call. 

     Blinder downplayed concerns that the virus disruptions would amount to a

significant credit event, saying the parts of the economy likely to be most

severely affected are movie theaters, restaurants and other businesses that are

not interest rate-sensitive.  

     "This is going to be a problem more for smaller businesses than larger

businesses," Blinder said. In aggregate, "it won't add up to much." 

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

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