Coronavirus, repo market and the reserve rate: What to watch this week from the Fed

  • The Federal Reserve’s policymaking group meets this week, with expectations of no change in rates.
  • However, there are several issues, including the coronavirus, that the central bank needs to consider.
  • There’s also the balance sheet expansion, and interest on bank reserves.

The Federal Reserve heads into its first meeting of the new decade with its key responsibility — interest rates — well resolved, but with a slew of other less headline-grabbing but still significant decisions on the table.

Practically no one expects the central bank to move its benchmark borrowing rate until at least September. Central bank officials have made it clear that it would take a meaningful change from current conditions to prompt another cut. There’s also pretty much no chance of a hike absent a sudden jump in inflation.

But officials still will be called on to answer a few key questions:

  • What role could the Wuhan coronavirus play in policy terms?
  • How much more will the Fed expand its balance sheet?
  • Is it time for another technical adjustment on the interest paid on bank reserves?

Wednesday’s rate decision and subsequent news conference from Chairman Jerome Powell likely will provide only hints rather than concrete answers. However, the details of where the Fed stand will be important.

“At best, they can be patient and wait and see and stay to their original script, which is ‘we’re on hold this year,'” said Lisa Shalett, chief investment officer at Morgan Stanley Wealth Management. “If they alter the script, I do think markets are going to be concerned.”

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