JPMorgan Says Fed Won’t ‘Keep its Powder Dry,’ Sees Zero Rate

(Bloomberg) -- JPMorgan Chase & Co. economists predicted the U.S. Federal Reserve will cut interest rates to the lowest level since 2015 by the end of next week, a more aggressive move than anticipated by other Wall Street banks.

Fed Chairman Jerome Powell and his colleagues will lower the benchmark federal funds rate by a full percentage point to a range of 0% to 0.25% at or before their March 17-18 meeting, JPMorgan’s economists including Michael Feroli said in a report late on Monday.

The spreading coronavirus’s damage to global economic growth and the likelihood that certain parts of the U.S. will be hurt by falling energy prices means the economists “see no good reason for the Fed to ‘keep its powder dry’.”

While officials are due to meet next week, “recent experience tells us the Fed will move before next Wednesday if they think they’ve seen enough,” the JPMorgan economists said. A reason to wait until the scheduled meeting is to use the extra time to build a broader policy response, they added.

What Next?

The Fed cut its benchmark rate by 50 basis points last week shortly after the Group of Seven finance ministers and central bankers pledged action to contain the threat of the virus outbreak.

A full percentage point reduction would slam the Fed’s main rate back to the low last witnessed in 2015. That would leave its officials having to consider other options to ease monetary policy even further given they previously signaled an aversion to negative rates.

Unlike most economists on Wall Street, JPMorgan had expected the Fed to cut rates this year even before the virus outbreak.

But their call for a 100 basis point move this month is still more bold than those elsewhere. Goldman Sachs Group Inc. and Barclays Plc said on Monday the Fed will lower by 50 basis points in March and April.

To contact the reporter on this story: Simon Kennedy in London at skennedy4@bloomberg.net

To contact the editors responsible for this story: Stephanie Flanders at flanders@bloomberg.net, Alaa Shahine, Fergal O'Brien

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