Traders are betting that the U.S. Federal Reserve (the Fed) may move aggressively to cut rates due the effects of the COVID-19 coronavirus outbreak, which sent global stocks plummeting this week.
Ann Saphir and Anthony Esposito for Reuters:
Traders of futures contracts tied to the U.S. central bank’s policy rate are already betting on it. On Thursday they were pricing in about a 76% chance of the Fed starting to cut rates as soon as next month and trimming an extraordinary three-fourths of a percentage point by September, according to CME Group’s FedWatch.
That would bring the short-term target rate to below 1% for the first time since 2017.
Global central bankers have for the most part taken a wait-and-see approach. European Central Bank President Christine Lagarde said on Thursday that she would need to see a “long-lasting” shock to act, adding that it has “certainly” not gotten to that point yet. In South Korea, home to one of the biggest outbreaks outside of China, the central bank unexpectedly held its fire on rate cuts.
Unlike many other central banks, the Fed still has some room to cut interest rates, although officials there have said that they want to see a “material change” in the economic data before they take further action after cutting rates three times last year.
U.S. President Donald Trump on Wednesday appointed Vice President Mike Pence to head public health efforts to contain the virus’ spread.
MacDailyNews Notke: Currently, according to the latest figures from Caixin, there are 78.962 confirmed cases in China, 36,117 recovered, 2,308 suspected cases, and 2,791 deaths. Confirmed cases outside of China total 4,906, with 77 deaths in 52 countries.
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Not much room to cut interest rates, and that is part of the problem that I have been trying to get people to understand. The combination of a $1T plus annual deficit inflated by a tax cut funded by additional borrowing along with very low interest rates leaves the Federal govt with no tools left to deal with major problems. But, as long as the very wealthy get their net worths inflated, I guess that makes the stupidity OK.