Factbox: Big banks predict Fed could take interest rates to zero

Factbox: Big banks predict Fed could take interest rates to zero

(Reuters) – A brutal global equities sell-off on Monday, sparked by a plunge in oil prices, has raised expectations of further policy easing by some of the world’s most influential central banks to shield economic growth from the coronavirus pandemic.

Markets have already priced in a second rate cut from the U.S. Federal Reserve this month.

Following is a snapshot of the commentary from analysts at J.P. Morgan, Citi, Barclays (LON:) and Bank of America (NYSE:) on their expectations of U.S. rates falling to zero in the coming months:

J.P. MORGAN:

** Says Fed is expected to lower rates by 100 bps at next week’s meeting.

** Believes a more “creative and broad-based policy response” will be required to avoid recession.

** Says if Fed were to cut rates to zero in the coming weeks, “they can couple this move with forward guidance conditioning any removal of this ease to inflation developments.”

CITI:

** Says markets need to be mindful that the Fed’s pricing has to be taken with “a grain of salt as a proxy for (its) expectations.”

** Says Fed’s next step will still be focused on improving market liquidity rather than cutting interest rates, even though both remain highly likely in due course.

BOFA GLOBAL RESEARCH:

** Now expect the Fed to cut rates by 50bp at both the March and April meetings, effectively taking the policy rate to zero in Q2.

** This will allow emerging markets central banks to ease more aggressively, brokerage says.

BARCLAYS:

** Revised its outlook to include a 50 bps rate cut in the target range for the federal funds rate at the March meeting and another 50 bp cut at the April meeting.

** “Our revised outlook takes monetary policy to the effective zero lower bound (ZLB) by April.”

** “In other words, a 50 bp rate cut plus a strong signal that appropriate policy requires another 50 bp cut in April would likely suffice.”

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