Fed Might Cut Interest Rates To Zero
The Fed might have to cut interest rates all the way to zero
The Federal Reserve’s quest to avoid a coronavirus-fueled recession may just be getting started.
The US central bank fired a weapon Tuesday it has in the past saved for such catastrophes as the September 11 terror attacks, the collapse of Lehman Brothers and the bursting of the dotcom bubble.
The emergency rate cut, the Fed’s first since 2008, is designed to insulate the American economy from the coronavirus and revive confidence in jittery financial markets.
Yet red flags only flew higher on Wall Street in the hours after that announcement. The Dow reverted to selloff mode, dropping 786 points, or 2.9%. More alarmingly, the 10-year Treasury yield plummeted below 1% for the first time on record.
These are signs that the Fed will need to make deeper rate cuts, perhaps even plunging the United States back to 0% interest rates — emergency territory last experienced in the aftermath of the Great Recession.
“I would not be surprised if within the next few months the Fed went back down to zero,” said David Kelly, chief global strategist at JPMorgan Funds.
The bank’s US economics research team told clients Tuesday they now see a 50% chance of a return to zero this year.
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