White House National Economic Council Director Larry Kudlow said Tuesday that he doesn't expect the Federal Reserve to cut interest rates in a "panic" move to protect markets from the impact the coronavirus could take on global manufacturing, exports and consumption.
"I don't expect the Fed — I'm not hearing the Fed's going to make any panic move," Kudlow told CNBC on Tuesday. "Apart from the virus, I have said I wouldn't mind seeing my friends at the Fed be a little bolder in their target rate and their balance sheet. I said that before the virus, that's not related to the virus."
Some investors had suspected as recently as Tuesday that the central bank could lower borrowing costs in an effort to preempt any slowdown the coronavirus could exact on U.S. GDP growth or financial markets. The Fed uses interest rates to pump up or slow down the economy by adjusting the amount everyday Americans and businesses pay to borrow money.
That sentiment flared in Tuesday trading as fears about the coronavirus contagion roiled investors after multiple countries reported a surge of cases over the weekend.
The reports of spreading infection sent the S&P 500 down 3.4% and the Dow Jones Industrial Average down more than 1,000 points on Monday. Each index notched its worst day since February 2018 as investors worried other nations could see the slowdowns in manufacturing, consumption and exports that have dogged China, the virus's epicenter.
The Dow was on track to fall another 700 points, about 2.5%, on Tuesday and the 10-year Treasury note yield hit an all-time low under 1.32%.
"Once the virus spread to Italy, Iran, and South Korea, the fixed income market rightfully saw this as a pandemic that has the potential to be far-reaching, pushing economic growth down, and central banks, specifically the Fed, into the fight by lowering interest rates," Kevin Giddis, a rates strategist at Raymond James, told CNBC.
But Kudlow has long parroted President Donald Trump's call for the Fed to impose easier monetary policy, telling CNBC last year that central bank officials should still add stimulus to the economy despite GDP growth at the time of over 3%.
He said in March that the Fed should "immediately" cut interest rates by 50 basis points.
"I am echoing the president's view — he's not been bashful about that view — he would also like the Fed to cease shrinking its balance sheet. And I concur with that view," Kudlow said at the time.
"Looking at some of the indicators — I mean the economy looks fundamentally quite healthy, we just don't want that threat," he added. "There's no inflation out there, so I think the Fed's actions were probably overdone."
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