At the height of last summer, New York Federal Reserve President John Williams temporarily roiled markets when he argued that central banks running low interest rates should act boldly to inoculate their economies against unfolding ailments.

“When you only have so much stimulus at your disposal, it pays to act quickly to lower rates at the first sign of economic distress,” he said in a speech that the New York Fed later clarified was not meant to be a policy signal. You want to “vaccinate against further ills.”

As Williams and his colleagues prepare for a monetary policy meeting next week, the mounting economic impact of the coronavirus is turning his academic theorizing into a practical consideration for policy: Should the Fed cut interest rates to zero, and if so, how soon should it act?

Arguing for such a move, sooner rather than later: Research like that of Williams that contends that central banks should not conserve their ammunition when rates are near zero and economic threats arise.

Arguing for a more cautious approach: The huge uncertainties surrounding the spread of the virus and its effects on the economy, as well as the scope of any measures from the Trump administration.

No Data
“They have literally no data as to the economic impact of the coronavirus,” said Justin Weidner, an economist at Deutsche Bank Securities Inc. The bank currently forecasts 50 basis points of cutting this month with the possibility of more as Fed officials see additional data.

“It is hard to say use all of your ammunition when you don’t know what you are shooting at or what the scope of the fiscal response is,” he said.

After an emergency half percentage point reduction last week, the Fed’s target range for the overnight interbank rate stands at just 1% to 1.25%.

Traders in the federal funds futures market are betting that the central bank will lower rates by at least another half point at its March 17-18 meeting.

A number of Fed watchers -- Michael Feroli, of JPMorgan Chase & Co., Jan Hatzius of Goldman Sachs Group Inc. and former U.S. central bank governor Laurence Meyer, to name a few -- predict that rates are headed to zero.

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