Fed could slash rates to zero - Barclays' economist Gapen

The US Federal Reserve will do what is necessary to contain the negative impact of coronavirus on the domestic economy, even if it means slashing interest rates to 0%, Michael Gapen, the head of U.S. economics research at Barclays told CNBC’s “Trading Nation” on Friday.

The central bank cut rates by 50 basis points last week and is widely expected to deliver another 50 basis point cut at its March 18 meeting.

Key quotes

The likelihood of getting to zero is higher than the risk of a recession.

There is probably a low risk of a recession, a  1 in 4 maybe at the most.

They certainly haven’t laid out a lot of plans. But certainly, they would not stop at zero. I think they would be prepared to do more.

Where I think the concern lies is does a dip, a V-shaped outcome from a virus create a credit event? Then, you could get a recession kind of outcome.

There’s a lot of volatility in markets, and the Fed is very concerned about market functioning and keeping liquidity free-flowing and credit available.