Federal Reserve Chair Jerome Powell holds a news conference following the Federal Open Market Committee meeting in Washington, December 11, 2019.
Joshua Roberts | Reuters
Financial markets and the White House are demanding interest rate cuts from the Federal Reserve that may not work and may not even be necessary.
As traders ramp up their bets for central bank easing, there’s an ongoing debate about whether the Fed should accede to the pressure with as much as a full percentage point cut this year, or wait to see whether the jangling nerves over the coronavirus subside.
The market’s expectation now is for either 50 or 75 basis points to be sliced off short-term borrowing rates by April. Ultimately, if the market and President Donald Trump prevail, rates will drop close to where they were during the financial crisis that ended 11 years ago.
“There’s no need for that. Rates have already fallen. How much lower do you want the 10-year note to go?” said former investment banker Christopher Whalen, founder of Whalen Global Advisors. “The market’s like a 2-month-old child. Every time it cries, it wants to be picked up. Sometimes you’ve got to leave the baby in the crib.”
Rate cut calls intensified late last week and into Monday as the Dow Jones Industrial Average lost 12% — $3.8 trillion in market value — and government bond yields hit a dizzying succession of new lows. Even amid Monday’s violent market rally, expectations remained high that the Fed would come through with an ambitious policy response.
Goldman Sachs, for one, said