Federal Reserve Chairman Jerome H. Powell pledged Friday that the Fed will “use our tools” to support the economy, an effort to ease fears over the viral outbreak and a strong signal of a likely rate cut, perhaps at its next meeting March 17 and 18.
The statement said the Fed will “act as appropriate to support the economy.” It came amid a week of dizzying plunges in stock prices that drove averages down roughly 13% in value.
Powell said the fundamentals of the U.S. economy “remain strong,” but noted that “the coronavirus poses evolving risks to economic activity.”
“The Federal Reserve is closely monitoring developments and their implications for the economic outlook,” he said.
Such statements from the Fed are unusual and tend to come during crises that cause widespread fears in financial markets. Similar comments were issued after the October 1987 market crash and after the Sept. 11, 2001, terrorist attacks.
The Fed’s statement Friday followed comments from some economists urging rate cuts to help allay fears and support the economy and the markets. Economists from Bank of America said Friday that they expect the central bank to cut its benchmark short-term rate by a half-percentage point at its March meeting, which would be twice the typical size of a cut and the largest cut since the Great Recession.
Investors are increasingly envisioning that the Fed will take action. On Friday afternoon, traders priced in a 96% likelihood that the Fed would implement a half-point cut in March, according to the Chicago Mercantile Exchange’s Fedwatch tool. That is a dramatic change since just a week ago, when the likelihood of a quarter-point cut was just 11%.
The initial reaction from investors was muted, with the Dow Jones average down about 690 points about 30 minutes after the statement, though the Dow was down roughly 780 points before it was issued.