“Following the emergency 50bp cut yesterday, which we flagged the risk of on Monday, we expect the Fed to subsequently cut rates twice more by 25bp, at the March and April FOMC meetings – as a base case,” ABN AMRO’s senior economist Bill Diviney noted.
Key quotes
“As a risk scenario, we cannot rule out further intermeeting moves – potentially more aggressive than we have pencilled in – if financial conditions tighten in a disorderly manner and/or there are signs that economic activity is being significantly hampered by virus containment efforts.”
“Our forecast is somewhat more aggressive than market pricing in terms timing, rather than magnitude – markets expect 43bp of cuts by the April FOMC, and 66bp by the December FOMC. Our base case is that activity will have stabilised and begun recovering by the end of Q2, and this should give the Fed sufficient confidence that the economy has achieved ‘escape velocity’ from the downturn.”
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