Williams Says Fed’s Rate Cut to Help Support U.S. Expansion

(Bloomberg) -- The Federal Reserve's surprise emergency interest-rate cut has put the central bank in a good position to shelter the record U.S. economic expansion, New York Fed President John Williams said.

“The coronavirus poses evolving risks to the U.S. economy,” Williams said in remarks prepared for delivery Thursday evening in New York. “Our policy action this week positions us well to support the economic expansion. We are carefully monitoring the effects of the coronavirus on the U.S. economic outlook and will respond as appropriate.”

The Fed announced a half-point rate cut Tuesday, following the worst week for U.S. stocks since the 2008 financial crisis. Financial markets have been rattled by the spreading coronavirus, which is causing significant disruptions to economic activity in China, where it originated, and elsewhere.

“This strong policy action provides meaningful support to the economy and will help sustain the economic expansion. The outlook is evolving and highly uncertain,” Williams said. “We will use our tools and act as appropriate to support the economy.”

Investors now expect Fed officials to reduce their benchmark rate by at least another quarter point when they gather for their next regularly-scheduled policy meeting on March 17-18.

“As part of our response, my colleagues and I in the Federal Reserve System are coordinating with our counterparts around the world,” Williams said. “Tuesday's phone call between G7 finance ministers and central bank governors, the subsequent statement, and policy actions by central banks are clear indications of the close alignment at the international level.”

Read More: G-7 Pledges to Fight Virus Risks, Stops Short of Specific Action

The New York Fed chief also said he is monitoring money markets closely.

Ample Reserve

“Treasury bill purchases continue to add to the underlying level of reserves, and repo operations are keeping reserve levels ample,” he said. “We remain flexible and ready to make adjustments to our operations as needed to ensure that monetary policy is effectively implemented and transmitted to financial markets and the broader economy.”

Earlier on Thursday, Dallas Fed President Robert Kaplan said the pace of acceleration in the coronavirus across the U.S. will be an important factor as he weighs the need for another interest rate cut when policy makers meet later this month.

“I am going to be watching very, very carefully the path of diagnosed cases,” Kaplan told Kathleen Hays in an interview on Bloomberg Television in Chicago. “We're just going to have to see what the actual developments are over the next 10 days, two weeks. That will be a key factor, yes, I will be using to judge what's appropriate and whether we can wait longer.”

--With assistance from Steve Matthews.

To contact the reporter on this story: Matthew Boesler in New York at mboesler1@bloomberg.net

To contact the editors responsible for this story: Margaret Collins at mcollins45@bloomberg.net, Alister Bull, Robert Jameson

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