MNI POLICY: Fed's Bullard: Further Rate Cuts A Possibility

By Evan Ryser

     WASHINGTON (MNI) - Further rate cuts by the Federal Reserve are a

possibility if a global pandemic develops, but it isn't a baseline case at this

time, St. Louis Fed President James Bullard said Friday. 

     Bullard, not an FOMC vting member in 2020, said the Fed is in a good

position because of the three rate cuts in 2019 designed to insure the economy

against adverse shocks. "The FOMC executed a marked turnaround in U.S. monetary

policy during 2019 that was designed in part to insure the economy against

possible negative shocks to growth."

     However, the Fed will "closely monitor" the evolving coronavirus impact on

the global economy, and should conditions develop further, then the Fed would

act, Bullard said according to prepared remarks.

     "Further policy rate cuts are a possibility if a global pandemic actually

develops with health effects approaching the scale of ordinary influenza, but

this is not the baseline case at this time," he said.

     While the risk remains small as of today, he said, investors and

policymakers are wise to worry about the possibility of a global pandemic. "This

is not what has happened with many other viral outbreaks, but each situation is

somewhat different," he said to the Fort Smith Chamber of Commerce in Arkansas.

     --CASES STABILIZING

     Bullard said coronavirus cases appear to be stabilizing in China, with

additional cases being reported globally, and global economic growth, centered

in Asia, is likely to slow temporarily.

     "Temporary disruptions to global supply chains are likely to have ripple

effects across the global economy," he added.

     Bullard noted that the coronavirus has also been associated with a global

flight to safety, pushing longer-term U.S. yields to record low levels. "This is

a bullish factor for U.S. economic growth above and beyond the declines in

yields associated with the 2019 change in direction for U.S. monetary policy."

     U.S. equity valuations have declined in recent trading, he said, due in

part to speculation on the impact of the coronavirus on global macroeconomic

conditions. He added that some firms' profitability will be directly impacted by

the effects of the virus on China and other countries.

     Even with recent declines in equity prices, the value of the U.S. publicly

traded corporate sector has increased at an annual rate of about 4.7% over the

last two years, Bullard said.

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

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