INSUBCONTINENT EXCLUSIVE:
By Tim DuyThe Federal Reserve finally succumbed to rising pressure from financial markets that have been roiled by the widening coronavirus
time to forestall a rate cut until the March meeting
Another week of free-falling markets would force their hand on an inter-meeting cut.
Despite repeated denials that it was too early to
remained the backstop for the economy
rates ahead of data that would justify a reduction
They still would prefer to view the virus as a temporary hit to the economy, much like a natural disaster
On one hand, that is a completely reasonable view
On the other, it is completely unrealistic at this point
The Fed cannot let panic on Wall Street continue because it would threaten the economic health of Main Street
The free flow of credit needs to be sustained and that requires circuit breakers to ensure that what so far has been an orderly sell-off
disinflationary negative demand shock
The Fed will need to ease policy in response
side of caution to prevent a recession.
Try as they might, the Fed may not be able to delay the rate cut until the next meeting
That very much depends on the ability of financial markets to stabilize this week
Odds are that they will continue to struggle instead
On Saturday, the first United States death from the COVID-19 virus was reported in Washington state, and new cases there as well as in
Oregon and California reveal the disease is spreading in the community
new development is a potential tape bomb.
Financial market participants also struggle with a lack confidence in the ability of the Trump
administration to manage a crisis
The fear is that the administration will prioritize politics over public health, and in the process worsen the spread of the virus and
create a greater sense of panic among the public
But it cannot suppress negative news here
There are simply too many state and local health authorities that will reveal the extent of the spread
Efforts to deny the evolving crisis will result in more tape bombs, though it appears the administration is beginning to sound a more sober
message and in some areas step up its response, such as its move Saturday to clear the way for faster diagnostic tests.
To be sure, market
participants might shrug off bad news this week
If so, the Fed could stay on its preferred course and hold off on further action
Because we are still in the early stage of the virus spreading in the United States , however, the risk is weighted in the direction of
continued turmoil in financial markets
The Fed may have little choice but to step in with inter-meeting action, particularly if the downdraft turns into something that threatens
to become a larger credit event
necessarily reflect the opinion of economictimes.com, Bloomberg LP and its owners)