AP photo / Richard Drew
With mounting concerns about a rapidly spreading virus outbreak, Wall Street is increasingly relying on the Federal Reserve to intervene to protect the US economy from stress.
According to the CME FedWatch-Tool, the market-based probability that the central bank would cut interest rates three times this year was around 80%, which investors expect a cut already in April.
The surge in expectations came after financial markets fell sharply the day before for a second session in a row when the Centers for Disease Control warned that the coronavirus would likely spread to US communities.
A rate cut would signal markets that the Fed is ready to protect investors from external shock, said Ian Shepherdson, chief economist at Pantheon Macroeconomics. It would also help companies under pressure from supply chain disruptions and temporary demand losses.
"However, you should be ready to reverse a rate cut when the virus crisis ends," added Shepherdson.
The central bank has signaled that it will monitor the corona virus for possible effects on the US economy, noting that its effects could affect the US economy. However, members of the Federal Open Market Committee, which set the policy, said it was too early in the past few days to know whether action should be taken to address the outbreak.
"The Federal Reserve, understandably, has yet to assess whether a negative fallout will last long enough to be significant," wrote Steven Wieting, chief investment strategist at Citi Private Bank, in a research note this week. "The long delays in influencing economic activity make monetary policy a relatively ineffective short-term palliative instrument."
(tagsToTranslate) Wall Street (t) Economy (t) Coronavirus (t) Politics (t) Federal Reserve