Desperate times call for desperate measures, and though we are not there yet, Michael Gapen, a top Wall Street economist, says he suspects that the Federal Reserve would slash interest rates down to zero percent if they had to choose between low rates or a recession. The concept of a zero percent interest rate may seem extreme, but we’ve been there before during the last financial crisis when rates ranged from zero to 0.25 percent. Though Gapen says there is a low chance of a recession, he admits that there are many unknowns surrounding the coronavirus’ spread such as how long quarantines will last and how the infectious rate will change as more testing reveals the extent of the outbreak.
Top Wall Street economist Michael Gapen expects the Federal Reserve will do what’s necessary to contain the coronavirus’ impact on the U.S. economy — even if it means slashing interest rates to 0%.
“The likelihood of getting to zero is higher than the risk of a recession,” the head of U.S. economics research at Barclays told CNBC’s “Trading Nation” on Friday. “There is probably a low risk of a recession, a 1 in 4 maybe at the most.”
It’s a move that would be deeper than during the financial crisis. That downturn prompted the Fed to cut rates to a range-bound 0%-0.25%.
“They certainly haven’t laid out a lot of plans. But certainly they would not stop at zero.” Gapen noted. “I think they would be prepared to do more.”
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