Fed officials hesitant to slash interest rates as coronavirus fears batter markets

coronavirus stocks

  • Federal Reserve officials signaled this week that it was too early to tell whether the central bank would need to step in to address potential coronavirus effects.
  • That came even as expectations for more interest-rate cuts jumped on Wall Street.
  • Concerns about the respiratory illness rose Tuesday after the Centers for Disease Control said the US should prepare for the outbreak to hit communities across the nation.
  • Visit Business Insider's homepage for more stories.
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Federal Reserve officials signaled this week that it was too early to assess whether the central bank would need to step in to shield the US economy from potential coronavirus effects, even as expectations for more interest-rate cuts jumped on Wall Street.

Concerns about the respiratory illness rose on Tuesday after the Centers for Disease Control said the US should prepare for the outbreak to hit communities across the nation. Financial markets extended sharp losses for a second day after the warning, with all three major US averages down more than 2%.
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The concerns drove investor expectations for another rate cut sharply higher. But members of the policy-setting Federal Open Market Committee have maintained a wait-and-see approach despite the rise of COVID-19, which has killed more than 2,700 globally and sickened tens of thousands more.

"The disruption there could spill over to the rest of the global economy," Fed Vice Chair Richard Clarida said in a speech at the NABE Economic Policy Conference in Washington on Tuesday afternoon. "But it is still too soon to even speculate about either the size or the persistence of these effects, or whether they will lead to a material change in the outlook."

At the same conference a day earlier, Cleveland Fed President Loretta Mester said it was difficult to assess the magnitude of the economic effects. She said the central bank would closely monitor the coronavirus but did not want to "overreact to the volatility in the markets."
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"You certainly want to take into account what's happening in the markets," she added. "I don't think it's great to take one day and extrapolate that out."

The Fed lowered interest rates three times last year, bringing them to a historically low target range of between 1.5% and 1.75%. With low unemployment and strong consumer activity, policymakers have since said they were comfortable with current borrowing costs. "We're in a good place right now, even with these market developments," Minneapolis Fed President Neel Kashkari told The Wall Street Journal in an interview Monday. "There's just great uncertainty around where this virus is going to go and when the full effects are going to be realized, so I'm open minded."
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