Chair Powell Signals the Fed Could Cut Rates

 

Risk assets and rates tumble as coronavirus fears grip markets. The virus has continued to spread with a second confirmed death in the US – the global death toll rising to 3,000. Large cities like New York and Berlin reported first cases. The Organization for Economic Cooperation and Development estimates that the US economy will at grow 2.4% instead of 2.9% in a “best case” scenario. The White House has allocated $2.5 billion in funds to address the virus damage, but concerns are growing that not enough is being done. The 10-year Treasury yield sits nearly 80 basis points lower from where it started the year, and is 7 basis points lower this morning at 1.08%.

 

 

Fed Chair Jerome Powell signaled the Fed is prepared the cut rates if necessary. President Trump is calling on the Fed to cut rates to alleviate the US’s economic disruptions. Japan’s central bank injected $4.6 billion into their economy and confirmed that it would continue to supply liquidity to ensure market stability. A rate cut would not prevent a complete economic downturn but could act as a cushion to reduce the damage to spending and consumer confidence. The market is now pricing in 1.5 rate cuts at the FOMC’s 03/18/2020 meeting.

 

 

Day ahead. IHS Markit will release information on US manufacturing PMI for February. The ISM manufacturing index will be released shortly after, with economists forecasting a tick down from 50.9 to 50.8 from last month. US construction spending for January is forecasted to rise 1.%. This evening, the White House will hold a briefing on the coronavirus.