Economic disruption from China attributed to Coronavirus may spill over globally as the Federal Reserve is all likely to cut borrowing costs to shield the economy from the disease.
Futures pricing as of Thursday was pegged at a 54% chance of the point cut in March, and traders have indicated a three-fourths of a percentage point reduction by September. It is all likely that the short-term target rate could be brought below 1% for the first time since 2017.
Traders witnessed a 33% chance of a rate cut in March on Wednesday before the report of new cases surfaced in Italy, Iran and around the world and were expanding faster than in China.
Amid mounting economic threat, global central bankers have been accused of adopting a “wait and watch policy.”
Christine Lagarde, President of European Central Bank claimed that the “shock” would not last long and claimed it is yet to reach to that level. Meanwhile, the central bank refrained from commenting on rate cuts in South Korea that is allegedly plagued with one of the biggest outbreaks outside the mainland China.
Charles Evans, Chicago Fed President reportedly offered a piece of advice to the central banking conference in the Mexico City, saying the policymakers should provide extraordinary accommodation to keep up with the mandate.
Some of the leading U.S. companies claim the coronavirus is denting their earnings and balance sheets. Best Buy Co Inc., for instance, dipped its annual profit forecast—indicating a slack in manufacturing by electronics companies which could dampen sales.
Last week, Apple stressed high chances of missing revenue targets for the first quarter of 2020, citing lower-than-expected production in manufacturing sites in China, thereby derailing global iPhone supplies.
Policymakers are on tenterhooks as they worry that coronavirus could have contributed to a dip inflation expectation, low rates allude they would have less ammunition to combat the next downturn.
According to reports, U.S. President Donald Trump has appointed Mike Pence, Vice President to lead public health efforts to curb the spread of coronavirus.