Moody's Analytics expects another rate cut by US Fed soon
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day after the US Federal Reserve announced an emergency rate cut, Moody's Analytics said that it may come up with another rate cut soon along with other measures to counter the impact of coronavirus epidemic.
On Tuesday, the Federal Reserve announced an emergency rate cut of 50 basis points (bps) in the US benchmark policy rates. It is the first unscheduled, emergency rate cut since the global financial crisis of 2008 and comes as novel coronavirus has hit the US too, killing six. The US benchmark policy rates now stands at 1 per cent to 1.25 per cent.
"The Fed's rate cut would pack the biggest punch if it creates a sense of urgency among fiscal policymakers to act. The Fed will likely cut again but they can pull other levers. It's possible that ease credit standards on banks," Ryan Sweet, Head of Monetary Policy Research at Moody's, said in a report.
It noted that there is flexibility in the Fed's guidance to banks during natural disasters, allowing them to provide temporary relief to borrowers under the Community reinvestment Act.
The Fed could use forward guidance, signalling they will keep rates low for an extended period of time or use quantitative easing, it said.
"We will likely incorporate at least one additional rate cut in our March baseline," Sweet said.
"However, monetary policy isn't a panacea. The intra-meeting decision is rare and risky, since it could be viewed as the central bank panicking, and financial market conditions may not respond as well as the central bank anticipates. The Fed's rate cut would pack the biggest punch if it creates a sense of urgency among fiscal policymakers to act," he added.
✔️ Moody's Analytics expects another rate cut by US Fed soon
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