The Federal Reserve is not done cutting interest rates. That’s the view from Wall Street.
Economists for leading financial firms expect the U.S. central bank to follow up this week’s emergency half-point interest-rate cut with another move at its March 17-18 meeting.
The reasoning is not that the Fed is trying to hold the stock market’s hand. Instead, Fed officials want to cushion the blow to the economy expected from the coronavirus outbreak, economists said.
There is no reason for the central bank to not keep cutting rates, said Avery Shenfeld, chief economist of CIBC Capital Markets.
“It’s no harm, no foul,” he said.
CIBC expects a quarter-point cut on March 18 and another at the Fed’s next formal meeting in late April.
If the economy somehow manages to avoid weakening substantially, the central bank can always take the rate cuts back, Shenfeld noted.
Economists aren’t confident the U.S. can get by unscathed.
Peter Hooper, global head of economic research at Deutsche Bank Research, said his firm expects the U.S. economy “to slow pretty close to zero” in the first half of this year. Deutsche Bank is forecasting a more-aggressive half-point rate cut on March 18.
Economists note that every step taken to prevent the spread of the coronavirus will show up in the economic numbers. As people pull back from going out to eat and to movies, growth will slow. Airline stocks JETS, -9.03% , for instance, have fallen sharply.
Lewis Alexander, chief U.S. economist at Nomura, said the Fed’s thinking is pretty clear.
“They’re going to respond to what’s in front of them,” rather than try to guess how it plays out, he said.
And what they see is growing likelihood of a negative shock, Alexander said.
Nomura expects a quarter-point rate cut on March 18 followed by another in April.
U.S. equity benchmarks continued to move in volatile fashion over the past two weeks. The S&P 500 SPX, -3.39% has given up all its gains seen since October. On Thursday, the Dow Jones Industrial Average DJIA, -3.57% closed down 969 points to 26,121.
The yield on the 10-year Treasury note TMUBMUSD10Y, 0.916% has fallen for 10 straight trading days with the yield at 0.918%.
There will be a slew of Fed speakers over the next day and a half before the central bank goes into the normal quiet period ahead of its March meeting.
New York Fed President John Williams, a member of Powell’s inner-circle, will speak this evening in New York.
And on Friday, six regional Fed presidents will deliver remarks at a conference on Fed monetary policy in honor of Marvin Goodfriend, a former Richmond Fed top economist, who passed away last December.