Federal Reserve officials are watching markets as coronavirus risks spook investors, and say they will ‘act as
appropriate.’
By Jeanna Smialek
Feb. 28, 2020
The Federal Reserve chair, Jerome H. Powell, in an attempt to soothe jittery investors, issued a short statement
Friday afternoon reaffirming that the central bank would use its tools and “act as appropriate to support the
economy.”
While Mr. Powell said that the “fundamentals of the U.S. economy remain strong,” he also noted that “the
coronavirus poses evolving risks to economic activity” and that the Fed “is closely monitoring developments and
their implications for the economic outlook.”
The statement came as stock markets in the United States tumbled for the seventh day as the continued spread of
the coronavirus stoked fears that the world was on the cusp of a pandemic and, potentially, a recession.
Expectations that the central bank will cut borrowing costs have skyrocketed as new coronavirus cases outside
China continue to mount, and economists saw Mr. Powell’s statement as a signal that the Fed would act soon to
offset any economic fallout.
“It was certainly an attempt to calm things down,” said Torsten Slok, an economist at Deutsche Bank. “This is the
strongest hint you can make that a rate cut is coming.”
Coronavirus cases in South Korea, Japan and Italy are climbing fast, prompting factories to close and contributing
to a steep falloff in tourism. While there have been comparatively few confirmed infections in the United States,
public health officials have warned that clusters of infection are very likely to appear, potentially resulting in
quarantines and production slowdowns.
Stock market indexes have slumped on virus worries, and money has been pouring into United States
government securities as people look for safe investments, pushing prices up and the yields on 10-year Treasuries
to record lows.
In Rare Statement, Fed Chair Keeps Rate
Cut on Table as Virus Risks Roil Markets
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President Trump, who has played down the economic threat to the United States from the virus, said on Friday
that he hoped the Fed would step in soon and cut rates.
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“I hope the Fed gets involved and I hope it gets involved soon,” Mr. Trump told reporters at the White House
before heading to a rally in South Carolina. The president has routinely criticized the Fed for not cutting rates
more aggressively.
Investors have also begun looking to the Fed for an economic rescue. Markets have fully priced in a rate cut by
the Fed’s meeting in March — something they saw as highly unlikely only a week ago. Economists at Bank of
America wrote on Friday that they now expected a 50-basis point cut next month. Rates are currently 1.5 percent
to 1.75 percent.
“An emergency cut by the Fed prior to the meeting is possible — it will depend on the extent of market
dysfunction,” they wrote.
The stock market trimmed its losses after Mr. Powell’s statement was released at 2:30 p.m., but remained in
significantly negative territory.
“The statement is a step in the right direction, but it stops short of what is needed, which I think is a statement
that says that the Fed can act preemptively to support the economy,” said Roberto Perli, an economist at
Cornerstone Macro. “It’s missing a sense of timing.”
Mr. Powell’s colleagues have expressed concern about the coronavirus, but several have also signaled that they
were not ready to lower interest rates. James Bullard, the president of the Federal Reserve Bank of St. Louis, said
during a speech in Florida earlier Friday that “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.”
The Coronavirus Outbreak
Answers to your most common questions:
Updated Feb. 26, 2020
What is a coronavirus?
It is a novel virus named for the crownlike spikes that protrude from its
surface. The coronavirus can infect both animals and people and can
cause a range of respiratory illnesses from the common cold to more
dangerous conditions like Severe Acute Respiratory Syndrome, or SARS.
•
How worried should I be?
New outbreaks in Asia, Europe and the Middle East are renewing fears of a
global pandemic. The Centers for Disease Control and Prevention warned
this week that Americans should brace for the likelihood that the virus will
•
In Rare Statement, Fed Chair Keeps Rate Cut on Table as Virus Risks Roil Markets – The New York Times 3/1/20, 5)20 PM
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The statement by the Fed chair underlines that the most important member of the 17-person Federal Open
Market Committee is closely focused on an unfolding public health concern.
Loretta J. Mester, the president of the Federal Reserve Bank of Cleveland and a monetary policy voter this year,
said in an interview on Thursday that the Fed should keep its options open. Ms. Mester, who is generally cautious
about such moves, initially opposed the Fed’s decision last year to lower borrowing costs three times.
“We always have to come in with open minds about what’s going on with the economy, and every day we’re
getting new information, especially with something that’s fast-moving, like this,” Ms. Mester said when asked
whether a cut next month was possible.
Explaining how she viewed the Fed’s calculus, Ms. Mester said officials should try to gauge whether there will be
longer-lasting economic effects from the virus, such as a hit to consumer confidence and demand.
“If people are temporarily staying home, not traveling, not interacting and purchasing things, that could be a
short-term hit,” she said. “Or it could develop into something broader — and that’s the kind of calculus you have to
do when you’re thinking about monetary policy.”
Though he said he was optimistic that the virus would be contained, Mr. Bullard also declined to rule out a Fed
rate cut in March, or even before, should things worsen.
“I wouldn’t want to prejudge the March meeting,” he said. “Obviously the situation is very fluid, and we’re going
to want to monitor events right up until the meeting.”
Asked if the Fed would consider an emergency cut before its next meeting, Mr. Bullard said he also did not “have
a sense” of whether that was possible.