Fed chief hints toward rate cut amid Wall Street coronavirus rout

Federal Reserve Chairman Jerome Powell said Friday that the central bank will likely take action to boost the U.S. economy amid a steep stock market selloff triggered by the coronavirus outbreak.

“The fundamentals of the U.S. economy remain strong. However, the coronavirus poses evolving risks to economic activity. The Federal Reserve is closely monitoring developments and their implications for the economic outlook. We will use our tools and act as appropriate to support the economy,” Powell said in a Friday statement.

Powell’s unplanned comments come as the Fed and its chairman face growing pressure from Wall Street to halt its worst week of losses since the depths of the financial crisis in 2008. 

Traders have been clamoring for the Fed to step in and cut interest rates before its upcoming March meeting after all three major U.S. stock indexes plunged Thursday into a correction.

Gregory Daco, chief U.S. economist at consultancy Oxford Economics, said in a Friday tweet that Powell’s statement represented “forward guidance aimed at preventing further tightening in financial conditions.”

Even so, Powell’s comments did little to soothe another brutal day for Wall Street. The Dow Jones industrial average had lost more than 800 points, a 3-percent drop, while the S&P Index and Nasdaq composite were down 2.6 percent and 2 percent respectively just after 3 p.m.

Financial markets have priced in a series of interest rates cuts leading up to and after the Fed’s planned policy meeting on March 17 and 18. President Trump also ripped the Fed in a Wednesday press conference, repeating his frequent claim that the central bank has harmed the economy.

Some economists have raised questions about the effectiveness of a Fed rate cut to counter supply chain disruptions. Economists have also noted that a cut to the relatively low Fed baseline interest rate range of 1.5 to 1.75 percent may do little to support an economy already fueled by low borrowing costs.

“Fed action is warranted and will bolster financial conditions. However, it’s a necessary but not sufficient condition to address the crisis,” said Joe Brusuelas, chief U.S. economist at audit and tax firm RSM.

“The fiscal authority will need to act robustly to address the needs of the real economy sooner rather than later.”

Updated at 3:10  p.m.