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US Fed to slash interest rates in coming months, traders bet

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Traders are betting the Federal Reserve will deliver another, bigger reduction in borrowing costs at its mid-March policy meeting, as worries about the spread of the new coronavirus trumped data showing robust hiring by U.S. employers last month.

[NEW YORK] Traders are betting the Federal Reserve will deliver another, bigger reduction in borrowing costs at its mid-March policy meeting, as worries about the spread of the new coronavirus trumped data showing robust hiring by U.S. employers last month.

With cases of the sometimes deadly respiratory illness caused by the virus surpassing 100,000 globally and an outbreak continuing within the United States, futures contracts tied to the Fed's key overnight lending rate reflected better-than-even bets the US central bank would further cut rates by three-quarters of a percentage point at its March 17-18 meeting.

That's on top of an emergency half-percentage-point rate cut delivered earlier this week to help shield the US economy from the effects of the outbreak.

Speaking on Bloomberg Television early on Friday, St Louis Fed President James Bullard said more action by the US central bank could come "at any time" as it monitors the situation.

"Everything is on the table," Mr Bullard said. "We are willing to do more."

The remark appeared to put more than just rate cuts on the table for the Fed. But it's unclear how effective other measures could be.

During the 2008 financial crisis and its aftermath, the Fed bought trillions of dollars of Treasuries and mortgage-backed securities to push down long-term borrowing costs and get businesses spending and hiring again.

But with investors flocking to assets seen as safe amid uncertainty over how much economic damage the coronavirus epidemic will cause, the yield on the benchmark 10-year Treasury note has already sunk to record lows of well below 1 per cent. 

REUTERS