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Are Rate Cuts on the Way?

The Federal Reserve is likely to cut rates in March, CNN Business reports. The CME's FedWatch Tool shows a 100% chance that the US Federal Reserve will cut rates in March.

Despite the prediction, Neel Kashkari and Loretta Mester, presidents of the Minneapolis and Cleveland central banks, respectively, both said Monday there was no immediate need to cut interest rates.

The Federal Reserve also discussed how the coronavirus may impact rate decisions. In response to growing coronavirus fears, Federal Reserve Chair Jerome H. Powell has stated that the Fed will “act as appropriate to support the economy,” The New York Times reports.

According to Powell , the “fundamentals of the U.S. economy remain strong.” He also noted that “the coronavirus poses evolving risks to economic activity” and said that the Fed “is closely monitoring developments and their implications for the economic outlook.”

Powell’s statements come after James Bullard, President of the Federal Reserve Bank of St. Louis, noted that the Fed may be willing to cut rates in response.

“We could cut rates if we got a global pandemic that actually develops with health effects that seem to be approaching the same level as seasonal influenza, but that doesn’t look like the baseline as of today,” Bullard said.

In an article on MarketWatch, economist Peter Morici disagreed with the Fed's plan. Dr. Morici, a business professor at the University of Maryland, stated that "calls for the Fed and other central banks to act quickly are misplaced at best and more likely downright dangerous."

"The most important thing to recognize is that fiscal and monetary policy—a quick tax cut or jolt of infrastructure spending and Fed interest rate cuts and bond purchases—will be akin to passing out candles," Morici said. "They won’t bring back electric power any quicker when the lines go down if utility companies don’t have enough trucks and crew. And shortages of what we need—not consumers and businesses unwilling to spend—is the coronavirus economic challenge."

About Author: Seth Welborn

Seth Welborn is a Harding University graduate with a degree in English and a minor in writing. He is a contributing writer for MReport. An East Texas Native, he has studied abroad in Athens, Greece and works part-time as a photographer.
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