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Analysts at Wells Fargo, now look for the FOMC to cut rates 100 bps by the end of Q2-2020 due to the growth-slowing effects that the COVID-19 outbreak has imparted to the economy. They warn the timing of the rate cuts is highly uncertain.

Key Quotes: 

“The risks to our view that the U.S. economy will grow 2.0% this year now seem to be skewed to the downside due to the COVID-19 outbreak. Although the situation remains very fluid, there are three channels through which U.S. real GDP growth could downshift, at least in the next few quarters.”

“We now look for the FOMC to cut rates 100 bps by the end of Q2-2020. That said, we are uncertain about the exact timing of the rate cuts. If financial markets continue to spiral lower, the FOMC may very well decide to cut rates before the committee’s next scheduled meeting on March 18. Or the committee could wait until March 18 to cut rates 50 bps with a follow-up 50 bps rate cut on April 29, or it could spread the rate cuts out to the June and July meetings.”

“We believe that our updated outlook of 100 bps of Fed rate cuts is evenly balanced by upside and downside risks in the current uncertain environment. If authorities succeed in bringing the outbreak under control in the near future, then the FOMC may not need to cut rates 100 bps. On the other hand, if the U.S. economy were to slip into recession because of the outbreak, then the Fed very well take its range for the fed funds rate all the way back to the zero lower bound.”