Fed Makes Emergency Rate Cut by 0.50% to 1.00-1.25%...More Reductions Likely to Combat COVID-19 Fallout (Business Brief No.3852)

             The Federal Reserve (Fed) trimmed its policy rate by 0.50 percent to 1.00-1.25 percent at an emergency meeting, March 3, 2020. The move suggests that the Fed has a more “negative" view towards the impact of the COVID-19 on household and business spending, plus the US economy overall, prompting it to deliver a rare emergency rate cut two weeks ahead of a scheduled regular FOMC meeting. Nevertheless, KResearch will continue to closely monitor the Fed's signals and a new set of the US economic growth forecast from the FOMC meeting slated for March 17-18, 2020 because such information will indicate the risk level and magnitude of the impact of the COVID-19 epidemic towards the world economy, including the US going forward.

            Due to increased risk foreseen from the COVID-19 outbreak, financial markets have assessed that the Fed may need to shave its policy rate further by at least 0.50 percent during the remainder of 2020, while interest rate futures traders view that there is a 9 percent likelihood that the Fed Funds rate will stand within a range of 0.00-0.25 percent in case of the broader COVID-19 outbreak in more countries.

              Meanwhile, amid weakening signs foreseen in the Thai economy and prolonged impact of the COVID-19 epidemic on domestic economic activities, in particular travel-related businesses, we at KResearch have assessed that the Monetary Policy Committee (MPC) may slash its policy rate by at least 0.25 percent (from the current 1.00 percent) at the meeting scheduled for March 25, 2020. If so, interest rates in the financial market and lending rates of commercial banks may gradually decline once more, thus helping reduce financial costs somewhat while fiscal and assistance measures for affected businesses and households will likely be introduced by the public and private sector agencies

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