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The Fed's response to the Coronavirus challenge

The Research Department of Intesa Sanpaolo expects a 50 basis point cut in US rates at the next Fed's meeting on March 17-18, bringing the target range for the fed funds rate to 0.5% - 0.75%. Subsequent interventions should bring rates to the zero limit by June 2020. In the meantime, the FOMC will prepare to act on other fronts, some now known (forward guidance, liquidity), others perhaps created by necessity (purchase of asset class securities other than Treasury and agencies, helicopter money).

According to the economists of Intesa Sanpaolo, the real uncertainty for the forecasts concerns not so much if there will be new measures, but how large they will be, what instruments they will concern and whether the Fed can wait for March 18 to act. In fact, on the one hand the Fed could intervene again before the regular meeting, making the forecasts made today obsolete. On the other hand, together with the rate decisions, the Fed will prepare measures to support liquidity and credit for businesses and families, while studying other extraordinary measures to be implemented in the event of a sharp deterioration in the scenario.

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