Fed keeping rate cut on the table
Chairman Powell tries to reassure investors rattled by coronavirus.
Federal Reserve Chairman Jerome Powell, in an attempt to soothe jittery investors, issued a short statement Friday afternoon reaffirming that the central bank will use its tools and “act as appropriate to support the economy.”
While the Fed chairman said that the “fundamentals of the U.S. economy remain strong,” he also noted that “the coronavirus poses evolving risks to economic activity” and said the Fed “is closely monitoring developments and their implications for the economic outlook.”
Powell’s statement came after his fellow officials signaled a willingness to cut interest rates if the coronavirus outbreak worsens, laying out a scenario in which the central bank might respond as infections and quarantines spread globally.
“We could cut rates if we got a global pandemic that actually develops with health effects that seem to be approaching the same level as seasonal influenza, but that doesn’t look like the baseline as of today,” James Bullard, president of the Federal Reserve Bank of St. Louis, said during a speech in Florida on Friday. Bullard does not vote on rate moves this year, but he is one of 17 regional and Washington-based officials who participate in policy discussions.
Bullard’s statement does not signal that the Fed will definitely cut interest rates at its mid-March meeting, but it lays out the sort of scenario that could prompt a Fed response. As coronavirus cases mount in countries outside of China and fuel worries that the world is staring down a pandemic, expectations that the central bank will slash borrowing costs have skyrocketed.
Investors had entirely priced in a March interest rate cut by Friday morning — a move viewed as barely possible just a week ago.
Still, stocks sank again after another wild day, extending a rout that left Wall Street with its worst week since October 2008.
The Dow Jones Industrial Average
lost 357 points, or 1.4%, to 25,409. The S&P 500 lost 24 points, or 0.8%, to 2,954. The benchmark index has lost 13% since hitting a record high 10 days ago. The Nasdaq rose 1 point to 8,567.
Loretta Mester, president of the Federal Reserve Bank of Cleveland and a monetary policy voter this year, told The New York Times on Thursday that the Fed should keep its options open. Mester, who is generally cautious about such moves, initially opposed the Fed’s decision to lower borrowing costs three times last year.