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Coronavirus may force Fed to give Trump more rate cuts
Trump: Fed funds rate is too high
President Trump argues that interest rates should be lowered.
What pundits called a "shock and awe" reduction in interest rates by the Federal Reserve this week wasn't enough to satisfy President Trump.
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He made clear in a matter of hours that he wants the central bank to do more, and traders and Wall Street economists predict he'll get his wish.
Trading in interest-rate futures tracked by the CME Group indicates a 72 percent chance the Fed will slash rates another 50 basis points when its monetary policy committee meets on March 18, mirroring the emergency cut on March 3 intended to insulate the U.S. economy from damage due to a coronavirus outbreak. That would take the fed funds benchmark to a target range of 0.5 percent to 0.75 percent, matching the forecast from Deutsche Bank economist Matthew Luzzetti.
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He based the prediction in part on history: The Fed typically adjusts interest rates at a meeting of the monetary policy panel, and the past five times it judged that economic conditions were severe enough to warrant action between meetings — decisions that occurred over a span of more than 30 years — it followed up with a second cut at the next meeting.
"More often than not, these moves were of a similar magnitude," Luzzetti noted. "Three out of five were the same size."
Still, he and other economists noted that the coronavirus outbreak poses a thorny dilemma for the Fed. While lowering interest rates can buoy the economy, the current slowdown in consumer demand reflects worry about contracting COVID-19 from exposure to other people, whether in malls, amusement parks or on airplanes and cruise ships, not limits on spending power.