MNI POLICY: Fed Signals Willingness to Cut Rates Amid Outbreak

By Jean Yung

     WASHINGTON (MNI) - Federal Reserve Chair Jay Powell on Friday signaled the

U.S. central bank is willing to cut interest rates as stocks plunged amid fears

Covid-19 will derail the global economy. 

     "The Federal Reserve is closely monitoring developments and their

implications for the economic outlook. We will use our tools and act as

appropriate to support the economy," Powell said in a rare and unscheduled

statement Friday afternoon. 

     The pledge to "act as appropriate" presaged three interest rate cuts in

2019 as trade uncertainty and a global slowdown threatened U.S. growth. Futures

markets have priced in a full rate cut by the next Fed meeting on March 18 and

analysts are debating the merits of a 50bps move. The Fed's key benchmark rate

is currently in a 1.50% to 1.75% target range. 

     "The fundamentals of the U.S. economy remain strong. However, the

coronavirus poses evolving risks to economic activity," Powell said.  

     Stocks headed toward their worst week since the financial crisis this week

after news that the coronavirus outbreak had spread to Europe and other parts of

Asia. The 10-year Treasury note hit an all time low and oil prices plummeted

more than 4%. 

     St. Louis Fed President James Bullard on Friday acknowledged the

possibility of further rate cuts "if a global pandemic actually develops with

health effects approaching the scale of ordinary influenza," but added that

"this is not the baseline case at this time."

     Rob Kaplan, chief of the Dallas Fed and a voter on the FOMC this year,

said, "I've said up to now it's too soon to make a judgment. But I'll be

prepared to make a judgment on what we ought to do as we go into the March

meeting."

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

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