Factbox: Big banks predict Fed could take interest rates to zero

(Reuters) - A brutal global equities sell-off on Monday, sparked by a plunge in oil prices, has raised expectations of further policy easing by some of the world’s most influential central banks to shield economic growth from the coronavirus pandemic.

FILE PHOTO: Federal Reserve Board building on Constitution Avenue is pictured in Washington, U.S., March 19, 2019. REUTERS/Leah Millis/File Photo

Markets have already priced in a second rate cut from the U.S. Federal Reserve this month.

Following is a snapshot of the commentary from analysts at J.P. Morgan, Citi, Barclays and Bank of America on their expectations of U.S. rates falling to zero in the coming months:


** Says Fed is expected to lower rates by 100 bps at next week’s meeting.

** Believes a more “creative and broad-based policy response” will be required to avoid recession.

** Says if Fed were to cut rates to zero in the coming weeks, “they can couple this move with forward guidance conditioning any removal of this ease to inflation developments.”


** Says markets need to be mindful that the Fed’s pricing has to be taken with “a grain of salt as a proxy for (its) expectations.”

** Says Fed’s next step will still be focused on improving market liquidity rather than cutting interest rates, even though both remain highly likely in due course.


** Now expect the Fed to cut rates by 50bp at both the March and April meetings, effectively taking the policy rate to zero in Q2.

** This will allow emerging markets central banks to ease more aggressively, brokerage says.


** Revised its outlook to include a 50 bps rate cut in the target range for the federal funds rate at the March meeting and another 50 bp cut at the April meeting.

** “Our revised outlook takes monetary policy to the effective zero lower bound (ZLB) by April.”

** “In other words, a 50 bp rate cut plus a strong signal that appropriate policy requires another 50 bp cut in April would likely suffice.”

Reporting by C Nivedita in Bengaluru; Editing by Alden Bentley and Dan Grebler