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Will the Fed Lower Rates Again?

Written By Sunday, April 24, 2022 Add Comment Edit

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Traders bet U.South. Fed will slash interest rates in coming months

FILE PHOTO: The Federal Reserve building is pictured in Washington, DC

By Ann Saphir

CHICAGO (Reuters) - Futures traders are betting the Federal Reserve will slash U.Due south. involvement rates in coming months to edgeless damage to the world's largest economy, as governments and companies motion to control the spread of the new coronavirus by limiting travel and public gatherings.

Prices of futures contracts tied to the Fed's cardinal overnight lending rate at 1 signal reflected better-than-even odds the U.S. central banking concern volition take lowered its primal overnight lending rate to a range of 0 to 0.25% by the cease of its April policy coming together, a level non seen since the 2008 financial crisis and its aftermath.

The Fed this week made an emergency one-half-percentage-point rate cut to help shield the U.Southward. economic system from the effects of the outbreak. Prices of rate-futures contracts suggested traders expected rates to exist cutting by three-quarters of a percentage point cutting, to 0.25% to 0.50%, by the cease of the March 17-18 meeting.

A rate cut helps the economy by easing fiscal conditions and supporting household and business confidence, Fed Chair Powell said earlier this calendar week.

At the signing of a $8.iii billion funding bill for vaccine inquiry and public health prevention efforts, U.S. President Donald Trump on Friday chosen for the U.S. central bank to do more.

Fed policymakers for their role have shied away from calling explicitly for more fiscal stimulus, but more analysts have been making the case for it.

"Policy should focus on protecting the incomes of sick workers, including vulnerable groups like the self-employed, and supporting the eventual rebound in output," Oxford Economics' Gregory Daco wrote.

"If authorities determine to shut schools, severely restrict travel and limit all nonessential movement, the U.S. economy volition fall into a recession – with naught Gdp growth in 2020 – putting an stop to its longest economical expansion ever."

Summit White House economic adviser Larry Kudlow said on Friday the Trump administration may have targeted steps to stimulate the U.Southward. economic system amid the coronavirus outbreak, including help for workers who lose wages, but said the economic system is not headed for recession.

Speaking in New York, Chicago Fed President Charles Evans said providing support to depression-income workers who lose pay because of the outbreak is an effective way to heave the economy.

Many workers at the lowest rungs of the U.Southward. pay scale piece of work in service jobs that require face-to-face interaction with customers of the sort that has been severely curtailed in countries similar People's republic of china in their efforts to comprise the virus.

The outbreak has killed more than than 3,400 people and spread across more than xc nations, with 6 countries reporting their first cases on Fri. The number of cases has crossed the 100,000 mark.

EVERYTHING ON THE TABLE

St. Louis Fed President James Bullard said on Bloomberg Television receiver that more than activity by the U.S. key bank could come up "at whatsoever fourth dimension" as policymakers monitor the situation.

"Everything is on the table," Bullard said. "We are willing to do more."

The remark appeared to set the table for the Fed to start using bond-buying and other measures to shore upwards the economy.

During the 2008 financial crisis and its aftermath, the Fed bought trillions of dollars of Treasuries and mortgage-backed securities to push downwardly long-term borrowing costs and become businesses spending and hiring once again.

Simply with investors flocking to assets seen every bit rubber amid uncertainty over how much economic harm the coronavirus epidemic will crusade, the yield on the benchmark 10-year Treasury note has already sunk to record lows of well below 1%, limiting the scope of any Fed bond purchases to practice more than to stimulate borrowing and spending.

Economists polled by Reuters were evenly split on whether the Fed would cut rates or not adjacent month, suggesting a lack of confidence that budgetary policy is the right tool to utilize to fight a well-nigh-term economic slowdown driven by the virus.

(Reporting by Ann Saphir with reporting past Lisa Lambert and Jonnelle Marte and Howard Schneider; Editing by Kevin Liffey, David Gregorio and Paul Simao)

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Source: https://finance.yahoo.com/news/u-fed-slash-interest-rates-144541402.html

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