Statement on surprise Fed rate cut

A Fed rate cut was expected by the markets, but no one expected it today.

Bottom line:  HFE does not believe that cutting interest rates will help resolve the supply shock induced by the coronavirus outbreak and the policy responses to it.

However, the markets expected something this morning, and this large surprise will engineer the big change in market confidence that the G-7 statement earlier in the day did not.

This rate cut  is neutral for our economic outlook, which is that U.S. economic fundamentals remain solid, while recession lies in store for Euroland, Japan and Britain, and Canada is facing a possible downturn.  However, we can also agree that stabilizing financial markets is a critical ingredient to ensuring continuing economic growth.

Carl B. Weinberg, Chief Economist
Rubeela Farooqi, Chief U.S. Economist