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FED: VIEW: Standard Chartered now expect the "FOMC to ease at its April & June
meetings (on hold, prev.) in response to the risk that coronavirus disrupts U.S.
& global activity, taking the Fed funds rate (upper bound) to 1.25% by end-Q2 &
end-'20 (prev. 1.75%) & 0.75% by end-'21 (prev. 1.25%). Fed funds futures
markets currently price in about 17bps by the end of April, 30bps by the end of
June & 60bps by year-end, so this forecast puts us moderately ahead of
money-market pricing in H1. We do not currently expect a 3rd cut in '20, but see
risk of a Dec move if the rebound from coronavirus fears is stunted. The Fed may
explicitly commit to unwind easing if disease risk fades. Our exp. is that
global disruptions to supply chains & tourism from coronavirus will lead the
FOMC to worry that activity will fall below trend. Our baseline view is that
activity will recover in H2, but the disease could prove more persistent and
cause disruption globally rather than primarily in China. We see the risk of
demand weakness as the Fed's immediate focus. A short-term demand drop could
easily outpace any supply drop. If employment begins to flag because of
shortages of raw materials and intermediate goods, wages could fall quickly."