Larry Kudlow Says Fed Won't Panic
Larry Kudlow, White House National Economic Council Director, said Tuesday that he doesn’t expect the Federal Reserve to cut interest rates in a “panic” move even though the coronavirus has impacted global manufacturing, exports and consumption.
“I don’t expect the Fed — I’m not hearing the Fed’s going to make any panic move,” Kudlow told CNBC on Tuesday. “Apart from the virus, I have said I wouldn’t mind seeing my friends at the Fed be a little bolder in their target rate and their balance sheet. I said that before the virus, that’s not related to the virus.”
Chatter as recently as Tuesday purported that the central bank could lower borrowing costs in an effort to preempt any slowdown the coronavirus could exact on U.S. GDP growth or financial markets. On Tuesday reports in multiple countries about a surge of cases over the weekend sent the market falling. The S&P 500 went down 3.4% and the Dow Jones Industrial Average went down more than 1,000 points on Monday. Each index notched its worst day since February 2018 as worries that other nations could see the slowdowns in manufacturing, consumption and exports that have plagued China.
After making about a 300 point recovery this morning the Dow is down over 1500 points from Friday's close and the 10-year Treasury note yield hit an all-time low under 1.32%.
“Once the virus spread to Italy, Iran, and South Korea, the fixed income market rightfully saw this as a pandemic that has the potential to be far-reaching, pushing economic growth down, and central banks, specifically the Fed, into the fight by lowering interest rates,” Kevin Giddis, a rates strategist at Raymond James, told CNBC.
Kudlow said in March that the Fed should “immediately” cut interest rates by 50 basis points.
“I am echoing the president’s view — he’s not been bashful about that view — he would also like the Fed to cease shrinking its balance sheet. And I concur with that view,” Kudlow said at the time.
“Looking at some of the indicators — I mean the economy looks fundamentally quite healthy, we just don’t want that threat,” he added. “There’s no inflation out there, so I think the Fed’s actions were probably overdone.”