MNI POLICY: Ex-Fed Meyer: Rates Could Hit Zero Before March 18

By Evan Ryser

     WASHINGTON (MNI) - The Federal Reserve could be forced to cut its benchmark

policy rate to the zero lower bound before the FOMC meets again March 18, former

Fed Governor Larry Meyer said in a client note Monday afternoon.

     "Even if the next cut doesn't take the funds rate all the way to the zero

lower bound, we expect it'll be there before long, likely by the time of the

regularly scheduled FOMC meeting next week," he wrote. 

     The Fed is likely to conclude that a cost-benefit analysis heavily favors

easing. "In that case, it makes sense to go ahead and do it immediately. Even if

the benefit is slight (which it may not be), you do what you can," wrote Meyer,

now president of advisory group Monetary Policy Analytics based in Washington.

     There is "essentially no chance of a 25bp cut" at the March 18 FOMC

meeting, Meyer wrote, and "with only 100bp of space left to cut, a 75bp cut is

off the table. They'd just do the full 100bp."

     Similarly, the NY Fed is also unlikely to taper its Treasury bill purchases

from $60 billion per month, as it had previously indicated, he said. 

     That the central bank lacks a comprehensive plan for asset purchases,

forward guidance or other tools at the zero lower bound will not stop the Fed

from acting, he said. Neither will worries over feeding panic in the markets or

potential for criticism that it overreacted. 

     "Sure, it would have liked to have a plan ready ... But here we are," Meyer

said. "The Fed will assume the worst and act on that basis, especially now that

credit issues have emerged."

     The nascent oil price war, unlike the Covid-19 outbreak, could change

directions if parties call it off, but that also won't shift the FOMC's easing

calculus, he said.

     "This move will help, but will not suffice to stem volatility more

generally," he wrote. 

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

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