Monetary Policy

Further Global Interest Rate Cuts Anticipated as Economic Buffer for Coronavirus Impact

Fed cuts funds rate by 50 basis-points; Canada, Australia follow suit

Updating new market analysis from A.M. Best

March 25, 2020– OLDWICK, N.J.–(BUSINESS WIRE)–AM Best anticipates further U.S. and global interest rate cuts in the first half of 2020 as governments strive to provide economic buffers against the potentially wide-ranging impact of the Coronavirus.

The Best’s Commentary, titled, “What a Difference a Month Can Make,” notes that in a surprise move, the Federal Reserve (Fed) cut its federal funds rate by 50-basis-points earlier this week. Other central banks, of note Canada and Australia, also cut policy rates this week with other banks injecting greater liquidity into the financial system. AM Best expects further accommodative monetary policy actions by central banks to continue in the first half of 2020.

Spending Declines Anticipated

In announcing the interest rate cut, Fed Chairman Jerome Powell stressed the underlying strength of the U.S. economy, but also noted that the virus outbreak would weigh on economic activity for some time. The uncertainty surrounding the coronavirus is likely to dampen growth, particularly during the first half of 2020, mainly through declines in spending by both businesses and consumers.

Fed Chairman Jerome Powell stressed the underlying strength of the U.S. economy, but also noted that the virus outbreak would weigh on economic activity for some time....

Other factors that could weigh on growth include supply chain disruptions, work place disruptions, growing business and consumer uncertainty, profit warnings and disrupted trade links, all of which have the potential to dampen the economy through declines in employment/work hours, disposable income and confidence concerns. The likelihood of a U.S. recession also has increased.

To access the full copy of this commentary, please visit here.

 

 

AM Best is a global credit rating agency, news publisher and data analytics provider specializing in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in New York, London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City. For more information, visit www.ambest.com.