March 2, 2020
Rising expectations for policy support and short-term oversold conditions deserve credit for this morning’s bounce. Fed fund futures pricing now implies 50bps of rate cuts this year and trending toward 75bps. Powell’s unscheduled Friday press conference seemed to endorse present market expectations for a rate cut at the upcoming 3/18 meeting. Monetary easing does little to counteract supply shocks but an assumed Fed rate cut should partially offset tighter financial conditions resulting from equity market weakness and recent widening in credit spreads. One policy lever that is not being discussed yet in the press is tariff relief. This is something we initially thought we’d see in the run up to the November election, but a moratorium on all tariffs now would remove a significant growth headwind and sentiment boost.