Apr 2, 2019

The Federal Reserve looks to be laying the groundwork for interest rate cuts

Fed Chair Jay Powell. Photo: Photo: Mark Wilson/Getty Images

Top Fed officials look to be setting the market up for interest rate cuts, just months after reversing course from planned rate increases.

The big picture: The theme of quantitative tightening is long gone and while U.S. data continues to hold firm, Fed Chairman Jay Powell and other Fed heavyweights are beginning to shift the narrative to worsening developments in other countries.

What's happening: Powell got things started in a little-noticed exchange during the Q&A session following the Fed's most recent policy meeting when he pointed out slowing in Europe and China.

Prominent Fed members have doubled down on those comments in the weeks since.

What they're saying: Fed Vice Chair Richard Clarida said last week in a speech titled "Global Shocks and the U.S. Economy" that even though the Fed's mandate is domestic, it now will keep a close eye on a series of "prominent" global growth risks and may need to pay closer attention.

  • "In today's world, U.S. policy makers can hardly ignore these risks," Clarida said. "The U.S. economy's increasing integration with the rest of the world has made it more exposed to foreign shocks."

More importantly, Clarida pointed to Fed rate cuts in 1998 he said helped avert a larger global financial meltdown. "In these episodes, accommodative policy responses in the United States helped ward off actual contractions of U.S. activity."

Clarida's comments followed remarks from Chicago Fed President Charles Evans and Boston Fed President Eric Rosengren that pointed to worrisome global developments that could push the Fed's hand on cutting rates, with Evans also spotlighting 1998.

The bottom line: Analysts have argued about whether the bond market or the stock market is right, as their prices have been atypically in sync for months. The answer could very well be both.

  • Fed rate cuts would likely be a major boon for equity prices and also boost bond prices, driving down yields. This is just what both markets seem to be pricing in.

Go deeper

Coronavirus dashboard

Illustration: Sarah Grillo/Axios

  1. Global: Total confirmed cases as of 9 p.m. ET: 721,584 — Total deaths: 33,958 — Total recoveries: 149,122.
  2. U.S.: Leads the world in cases. Total confirmed cases as of 9 p.m. ET: 142,106 — Total deaths: 2,479 — Total recoveries: 2,686.
  3. Federal government latest: President Trump says his administration will extend its "15 Days to Slow the Spread" guidelines until April 30.
  4. Public health updates: Fauci says 100,000 to 200,000 Americans could die from virus.
  5. State updates: Louisiana governor says state is on track to exceed ventilator capacity by end of this week — Cuomo says Trump's mandatory quarantine comments "panicked" some people into fleeing New York
  6. World updates: Italy on Sunday reports 756 new deaths, bringing its total 10,779. Spain reports almost 840 dead, another new daily record that bring its total to over 6,500.
  7. What should I do? Answers about the virus from Axios expertsWhat to know about social distancingQ&A: Minimizing your coronavirus risk
  8. Other resources: CDC on how to avoid the virus, what to do if you get it.

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World coronavirus updates: Cases surge past 720,000

Data: The Center for Systems Science and Engineering at Johns Hopkins, the CDC, and China's Health Ministry. Note: China numbers are for the mainland only and U.S. numbers include repatriated citizens and confirmed plus presumptive cases from the CDC

There are now more than 720,000 confirmed cases of the coronavirus around the world, according to data from Johns Hopkins. The virus has now killed more than 33,000 people — with Italy alone reporting over 10,000 deaths.

The big picture: Governments around the world have stepped up public health and economic measures to stop the spread of the virus and soften the financial impact. In the U.S., now the site of the largest outbreak in the world, President Trump said Sunday that his administration will extend its "15 Days to Slow the Spread" guidelines until April 30.

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Photo: Tasos Katopodis/Getty Images

President Trump is extending his administration's "15 days to slow the spread" shutdown guidelines for an additional month in the face of mounting coronavirus infections and deaths and pressure from public health officials and governors.

Driving the news: With the original 15-day period that was announced March 16 about to end, officials around the country had been bracing for a premature call to return to normalcy from a president who's been venting lately that the prescription for containing the virus could be worse than the impacts of the virus itself.

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