US: Fed to ease further by the end of Q2 – Wells Fargo

The Federal Reserve cut its target range for the interest rate 50 bps on Wednesday. Analysts at Wells Fargo look for the FOMC to ease further by the end of the second quarter.

Key Quotes: 

“Growth in the countries that have been adversely affected by the outbreak to date (e.g., China, South Korea, Italy, etc.) should exert headwinds on U.S. export growth in coming months. In addition, individuals in the United States are starting to cancel travel, which will negatively affect U.S. airlines and travel destinations.”

“The temporary closure of factories in the affected countries could lead to supply chain disruptions in the United States, which could then cause production in the economy to downshift sharply.”

“The recent swoon in the stock market and the associated widening in corporate bond spreads represents a tightening in financial market conditions.”

“We look for the FOMC to cut rates further.”

“The exact timing of additional rate cuts is highly uncertain because it depends largely on the evolution of the coronavirus outbreak. But at this point we look for the committee to cut rates a total of 50 more basis points by the end of the second quarter. That said, we readily acknowledge that this forecast could be upended by the evolution of the outbreak. If the outbreak is quickly contained, not only in the United States but in most foreign economies as well, then the FOMC may not end up cutting further. If, on the other hand, the outbreak in the United States accelerates sharply, then the U.S. economy could conceivably slip into a mild recession. In that event, the FOMC could cut rates all the way back to the zero lower bound.”