Raging virus makes zero rates a possibility as Fed meets

WASHINGTON: The US Federal Reserve will have one job next week: convince the world they are doing everything they can to blunt the coronavirus impact on the economy even if their tools aren't the best ones for the job.

In the eight weeks since Fed Chair Jerome Powell presided over the central bank's last scheduled policy meeting, the outbreak has transformed the global economy, forcing the Fed to make an emergency half-point cut to its benchmark lending rate and inject $1.5 trillion into financial markets last week.

At their two-day meeting starting Tuesday, analysts say the question is not whether the Fed will cut again — that is seen as a certainty but how low they will go.

“Do they go to zero immediately or wait till April? That's a hard call," Diane Swonk, chief economist at Grant Thornton, told AFP. She cautioned that “cutting rates alone literally cannot cure what ails us," but “it can help on the other side, it can help blunt the blow."

The outbreak of COVID-19 has already hammered Wall Street, putting it back into a “bear market" for the first time in 11 years and wiping out over $16 trillion in equity worldwide and still counting.

The Fed twice boosted cash injections into financial markets and last Thursday announced a massive and unprecedented $1.5 trillion in additional funding last week alone. In addition, it broadened purchases of US Treasury debt, moves likened to the “quantitative easing" strategy used during the 2008 global financial crisis.

But analysts say those moves are not enough by themselves to inoculate the economy. That will require the help of politicians wielding the power of the purse to aid consumers and businesses, and public health authorities fighting the virus.

“If this were a movie, the Fed would be playing the role of a supporting actor," said David Wilcox, a former Fed advisor now with the Peterson Institute for International Economics in Washington.