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Coronavirus Will Push Fed Funds Rate to Zero

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The Federal Reserve will cut rates to zero - sooner than later.

That's the message from fed funds futures, which gauge what investors  are betting in terms of where the benchmark interest rate will go in the short term. 

Investors are betting the Fed will cut its benchmark interest rate by at least another 75 basis points either at or even before its next policy meeting, scheduled for next week, as the cascading impact from the coronavirus continues to afflict what appears to be unprecedented damage on the U.S. and global economies.

The CME Group's FedWatch tool, which assigns rate cut odds based on futures prices, suggested investors are pricing in at least a 67% chance of a 75-basis-point rate cut following the Fed’s scheduled March 18 Federal Open Market Committee meeting, a move that would lower the Fed's target rate to a range of 0.25% to 1%.

The Fed last week cut its benchmark lending rate by 50 basis points in a surprise decision designed to cushion the economic impact of the coronavirus. It was the biggest rate cut since the fall of 2008 and the first emergency rate move since the global financial crisis.

The New York arm of the central bank this week said it will increase the size of its operations in the repo market, where investors exchange high quality collateral such as Treasurys for cash, to at least $175 billion in daily overnight loans, up from $150 billion offered earlier in the week. 

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