US Fed Repeatedly Dismisses Expectations of Interest Rate Cuts

Blocking the Possibility of Interest Rate Cuts Due to the Impact of the Novel Coronavirus

[Asia Economy New York=Correspondent Baek Jong-min] Officials of the U.S. central bank, the Federal Reserve (Fed), have dismissed the possibility of a rate cut due to the novel coronavirus infection (COVID-19).

James Bullard, President of the Federal Reserve Bank of St. Louis, on the 21st (local time) assessed that the impact of COVID-19 on the U.S. economy would be limited, blocking the possibility of a rate cut circulating in the market.

He said, "The COVID-19 shock is temporary, and the current policy stance (rate hold) seems appropriate," adding "Like other viruses, COVID-19 will pass, the shock is temporary, and there is a high likelihood that everything will return to normal." He evaluated that "the possibility of the situation worsening significantly is low."

President Bullard pointed out, "If the scenario is that the virus disappears and everything returns to normal, there is no need to cut the benchmark interest rate."

He emphasized that "many news reports about the U.S. economy over the past few months have been positive," and "the U.S. economy is in a good state for a soft landing," expressing the opinion that a rate cut is not necessary under the current economic conditions.

Although President Bullard does not have voting rights at the Federal Open Market Committee (FOMC), which decides interest rates, his remarks can be seen as an indirect confirmation of the perceptions of Fed officials who do have FOMC voting rights.

The day before, Richard Clarida, Vice Chairman of the Fed, expressed a similar view. He said, "The U.S. economy has strong fundamentals and is in good condition." This can be interpreted as a statement favoring a rate hold rather than a rate cut possibility.

These remarks are read as a move to block market expectations of a rate cut related to COVID-19.

Currently, the Chicago Mercantile Exchange (CME) FedWatch tool reflects a 54% chance of one rate cut by the Fed by June and a 58% chance of two rate cuts by the end of the year.