Fed chair keeps cut on table as virus risks roil markets

Federal Reserve Chairman Jerome Powell, in an attempt to soothe jittery investors, issued a short statement Friday afternoon reaffirming that the central bank will use its tools and “act as appropriate to support the economy.”

While the Fed chairman said that the “fundamentals of the U.S. economy remain strong,” he also noted that “the coronavirus poses evolving risks to economic activity” and said that the Fed “is closely monitoring developments and their implications for the economic outlook.”

Powell’s statement came after his fellow officials signaled a willingness to cut interest rates if the coronavirus outbreak worsens, laying out a scenario in which the central bank might respond as infections and quarantines spread globally.

“We could cut rates if we got a global pandemic that actually develops with health effects that seem to be approaching the same level as seasonal influenza, but that doesn’t look like the baseline as of today,” James Bullard, president of the Federal Reserve Bank of St. Louis, said during a speech in Florida on Friday. Bullard does not vote on rate moves this year, but he is one of 17 regional and Washington officials who participate in policy discussions.

Bullard’s statement does not signal that the Fed will definitely cut interest rates at its mid-March meeting, but it lays out the sort of scenario that could prompt a Fed response. As coronavirus cases mount in countries outside of China and fuel worries that the world is staring down a pandemic, expectations that the central bank will slash borrowing costs have skyrocketed.

Investors had entirely priced in a March interest rate cut by Friday morning — a move that was viewed as barely possible just a week ago.

Loretta Mester, president of the Federal Reserve...