Another Bad Week for Markets Will Force the Fed's Hand
Like it or not, central bankers can’t let Wall Street slide indefinitely. That likely means a rate cut sooner rather than later.
The Fed’s language indicates an imminent rate cut. But just how imminent will it be?
Photographer: Bloomberg
The Federal Reserve finally succumbed to rising pressure from financial markets that have been roiled by the widening coronavirus crisis with its pledge Friday to “act as appropriate to sustain the expansion.” I suspect central bankers hope the move will buy them enough time to forestall a rate cut until the March meeting. It’s not obvious yet that they will get that time. Another week of free-falling markets would force their hand on an inter-meeting cut.
Despite repeated denials that it was too early to consider a policy shift, the Fed eventually recognized that they couldn’t let markets slide day after day without a firm indication that it remained the backstop for the economy. The language of the central bank’s statement was the same used by Chair Jerome Powell last June. Then, like now, it signals an imminent rate cut, likely at the Fed meeting this month on March 17-18.