What to know in the week ahead

The number of coronavirus cases in the U.S. has continued to march higher, with the outbreak ushering in a host of disruptions to individuals’ daily lives and businesses’ operations.

The financial market volatility stemming from the pandemic reached historic levels last week, with each of the S&P 500 and Dow posting their worst percentage declines since since 1987’s Black Monday late in the week. All three major indices are now languishing in a bear market, after sinking more than 20% from their recent record highs.

Amid the outbreak, U.S. officials increased their efforts to combat the economic fallout from the virus, unveiling further stimulus aimed at some of those most hit by outbreak-related disruptions.

In a press conference Friday afternoon, President Donald Trump declared the outbreak a national emergency, unlocking some $50 billion in funding that can be given to state and local municipalities to respond to the outbreak.

Trump also waived interest payments on all student loans held by federal government agencies until further notice, and instructed the Department of Energy to purchase large quantities of crude oil for the U.S. Strategic Petroleum Reserve – an effort to help support U.S. shale producers hit hard by the recent precipitous decline in oil prices.

And on Saturday, the House of Representatives passed a bipartisan bill to help provide further support in response to the coronavirus. The legislative package, which passed with a vote of 363-40, broadens access to free testing, expands sick leave benefits and helps provides food aid for vulnerable populations, including children whose schools have closed due to the coronavirus.

The Senate is expected to vote on the bill this week, and could take it up as soon as Monday. President Donald Trump wrote in a Twitter post that he “fully support[s]” the bill, saying at the time that he encouraged “all Republicans and Democrats to come together and VOTE YES!”

Federal Reserve meeting

Investors are betting that the Federal Reserve will also step in with more stimulus.

The Federal Open Market Committee (FOMC) is set to meet Tuesday and Wednesday for their scheduled March monetary policy meeting.

Over the weekend, market participants priced in a 100% probability that rates would be cut by another at least 75 basis points, according to CME Group. Such a move would escalate the monetary policy response after the Fed unexpectedly slashed rates by 50 basis points to between 1% and 1.25% on March 3.

Many economists believe the Federal Reserve will slash rates all the way to 0% at the low end of the target band, materially lowering the short-term borrowing costs for market participants as the coronavirus outbreak flares.

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“We expect the FOMC will reduce the target range for the federal funds rate by 1 [percentage point] to 0.0-0.25% and signal it expects to maintain an exceptionally low policy rate for ‘some time,’” Barclays economists including Michael Gapen wrote in a note Friday. “This subjective forward guidance has historically been linked with a period of several quarters, in line with our expectation that the funds rate will remain at the zero-lower bound (ZLB) through year-end.”

Last week, the New York Federal Reserve had stepped in with additional liquidity operations to help support the recently tumultuous money markets, offering $1.5 trillion worth of short-term loans. The Fed also announced it will broaden out its purchases of $60 billion per month to include Treasury securities across all durations including long bonds, further injecting liquidity into Treasury markets.

At the end of the Fed meeting Wednesday, some economists expect the central bank will announce either an increase to its monthly purchase rate of Treasuries, or an extension to the length of time the program will continue.

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