Fed Officials Say Watching Virus Fallout, Willing to Do More

Fed Officials Say Watching Virus Fallout, Willing to Do More

(Bloomberg) — The U.S. central bank is willing to act again if needed to shelter the U.S. economy from the impact of the spreading coronavirus, Federal Reserve officials said Friday.

“We correctly positioned the policy rate given what we knew,” Saint Louis Fed President James Bullard said in an interview Friday morning on Bloomberg Television, referring to the Fed’s emergency 50 basis point cut on Tuesday. “Everything is on the table. We are willing to do more. But we are monitoring the situation. We can meet at any time.”

Financial markets have plunged wildly this week as investors seek to price the fallout from the virus, which has infected more than 100,000 people worldwide and is causing significant disruptions to economic activity in China, where it originated, and elsewhere. Treasury yields fell to record lows with the 10-year note touching 0.69%.

Speaking later in the morning at an event in New York, Chicago Fed President Charles Evans said the central bank “is going to be paying attention to how this is progressing and responding as appropriate.”

Can Do, Will Do

“What monetary policy can do, will do, is look at what these risks mean for the path of the economy,” Evans said. When asked what else the Fed could do if it were forced to cut rates all the way to zero, he nodded to the kinds of unconventional policies — like bond-buying and signaling about the future path of interest rates — that the Fed deployed in response to the 2008 financial crisis.

“The kinds of things we can do are not unknown to people in this room and to the public, and so I think the path forward is not that unclear,” Evans said. Fed officials are making some of their final comments before entering their regular blackout period at midnight on Friday ahead of the central bank’s next regularly-scheduled policy meeting on March 17-18 in Washington.

Investors now expect Fed officials to reduce their benchmark rate by at least another 50 basis points by the end of March.

Bullard played down expectations for the gathering.

“I just don’t want people to focus so heavily on that particular day because the FOMC has already shown, Jay Powell has already shown, we can move between meetings,” Bullard said, referring to the Fed chairman. “If we get to the March meeting and we don’t want to move at that particular day, that’s perfectly fine. But then you could get 10 days beyond that and things have deteriorated, maybe you decide to make a move then.”

Bullard said he was encouraged by signs that China is stabilizing and its economy may “come roaring back” in the second quarter. Hong Kong’s flu season ended early because officials had taken so many steps to head off the virus, he added. The effect of the virus should be temporary in other countries including the U.S., where the nation has a solid health-care system, he said.

“There are downside risks to growth,” Bullard said. “It seems like the markets are pricing in the very worst case.”

(Updates with Evans comments beginning in fourth paragraph.)

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