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On Wednesday, in an unscheduled move, the Federal Reserve (Fed) cut interest rates by 50 bps. According to analysts at the National Bank of Canada, the decision increases the odds of a more aggressive Bank of Canada. 

Key Quotes:

“Today’s move, which speaks to the severity of the supply disruptions and services sector damage linked to the coronavirus, comes amidst elevated financial market volatility. Short-dated Treasuries rallied significantly in the wake of the surprise move, with expectations of additional near-term FOMC easing very much alive.”

“Clearly the situation is evolving rapidly, and we have limited visibility in terms of what market conditions will look like come March 18th. In this context, we think the Fed may choose to further loosen monetary policy at its next meeting but the final decision will depend on incoming data and the evolution of financial conditions.”

“Fed’s decision opens the door to a more aggressive move by the Bank of Canada at tomorrow’s meeting. We now see the BoC matching the Fed, opting for a 50 bp cut on Wednesday—monetary policy relief that comes despite the fact that Trudeau/Morneau appear ready to marshal fiscal policy in support of the Canadian economy.”