Cleveland Federal Reserve President Loretta Mester
The U.S. Federal Reserve’s emergency 50 basis point rate cut on Tuesday was not driven by last week’s market capitulation, but it was taken into account, Cleveland Federal Reserve President Loretta Mester told CNBC.
Speaking to CNBC’s “Squawk Box Europe” on Wednesday, Mester revealed that she supported the cut on the basis of fresh uncertainty over the medium-term outlook for the U.S. economy.
“The risks around that outlook had gone up significantly. There’s still a lot of uncertainty about the course of the virus and what impact it’ll have. We have already seen impacts in terms of travel and tourism, we’re going to see a reduction in activity for the first half of the year. This was really in response to the economy and the outlook and the risks around the outlook,” Mester said.
However, she acknowledged that the market rout had piqued the interest of Fed policymakers. “You certainly have to take note when the markets are doing that. You don’t respond to market volatility per se but if investors pull back as much as they were showing that they did, that also influences business sentiment and also consumer sentiment. There is a signaling in that market about the reevaluation of the outlook on the part of investors, consumers and businesses.”
The U.S. Federal Reserve slashed interest rates by half a percentage point on Tuesday in an emergency measure to combat the expected economic fallout from the coronavirus outbreak, sparking a turbulent session which saw the 10-year yield dip below 1% for the first time in history.
Other major central banks have scheduled meetings in the coming weeks and could follow the Fed’s lead, including the European Central Bank, the Bank of England and the Bank of Japan.
According to the latest figures from the World Health Organization, at least 91,700 global cases have been confirmed with at least 3,100 deaths.
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