March 2, 2020 — Powell Opens Door to Possible Interest Rate Cut

MARCH 2, 2020 – POWELL OPENS DOOR TO POSSIBLE INTEREST RATE CUT

Reversing his determination not to cut interest rates, Fed Chair Powell said on Friday he would be open to bringing rates down to stave off a recession brought on by coronavirus fears worldwide.

“The fundamentals of the U.S. economy remain strong,” Powell said in a statement released by the central bank. “However, the coronavirus poses evolving risks to economic activity. The Federal Reserve is closely monitoring developments and their implications for the economic outlook. We will use our tools and act as appropriate to support the economy.”

By announcing they are open to adjusting rates, the FOMC hopes to calm markets and buy time to act, or not act, depending on the state of the market.

Investors will now focus on how large of a cut the central bank could make to the rate, which is currently 1.5 to 1.75 percent, low by historical standards. The Fed meets next on March 18, but an emergency cut before that could happen, depending on the extent of market panic. Unfortunately, with rates still so low, they don’t have much wiggle room.

Bank of America researchers gave three reasons for the Fed to cut rates: signs of consumer sentiment being hurt by the stock market; the need to calm disorderly markets to ensure credit remains widely available; and a desire to keep rates at a level that doesn’t hold back an economy facing the risk of a downturn.

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