Fed Rate Cuts Possible if Coronavirus Situation Worsens, Bullard Says
February 28 2020 - 8:47AM
Dow Jones News
By Michael S. Derby
Federal Reserve Bank of St. Louis President James Bullard said
Friday the coronavirus situation could cause the central bank to
lower rates, but so far, he doesn't think lowering the cost of
short-term borrowing is needed, in part because of rate cuts made
last year.
"Further policy rate cuts are a possibility if a global pandemic
actually develops with health effects approaching the scale of
ordinary influenza, but this is not the baseline case at this
time," Mr. Bullard said in materials prepared for a presentation in
Fort Smith, Ark.
The Fed lowered rates three times in 2019 as it sought to offset
risks to the U.S. economy from trade policy uncertainty and slowing
global growth. Mr. Bullard reiterated in his presentation that the
shift in monetary policy by the Fed has had an stimulative impact
beyond the actual scope of the rate cuts, given how other asset
prices reacted. That stimulus is still affecting the economy and
will help the U.S. navigate the current situation of uncertainty,
he said.
The Fed "is in a good position because of previous policy rate
cuts designed to insure the economy against adverse shocks," Mr.
Bullard said. "Policy rate decreases have an effect on the U.S.
economy with a lag, so last year's rate reductions are likely to
continue to have an influence as the coronavirus tragedy unfolds,"
he added.
Mr. Bullard also said the very sharp decline in Treasury yields
seen over recent days -- the 10-year note yield hit a record low
amid investors seeking a safe place to park their money -- should
also help buoy the economy. "Longer-term U.S. interest rates have
been driven lower by a global flight to safety, likely benefiting
the U.S. economy," he said.
Write to Michael S. Derby at michael.derby@wsj.com
(END) Dow Jones Newswires
February 28, 2020 09:32 ET (14:32 GMT)
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