Howard Bank CEO: Fed's interest rate cut 'not what we wished for'

Baltimore Business Journal - 03/03/20 | Written by: Holden Wilen

The Federal Reserve surprised many with an emergency cut to interest rates on Tuesday, a move aimed at helping the economy amid the growing threat from the spread of coronavirus.

Following the stock market's worst week since the Great Recession, the central bank's Federal Open Market Committee voted unanimously to lower the target range for its benchmark federal-funds rate by a half percentage point, to between 1% and 1.25%. It was the first between meetings move by the Fed since 2008.

The cut comes as the coronavirus has spread across the world, infecting more than 90,000 people. The disease, which originated in China, has killed more than 3,100 people globally. In the U.S., there are more than 100 confirmed cases and six people — all in Washington state — have died.

Fed Chairman Jerome Powell said the economic impact of the coronavirus remains uncertain, but reducing interest rates will provide a “meaningful boost to the economy” while the U.S. and countries across the world deal with the growing outbreak. Powell said he remains confident in the U.S. economy and expects it to return to “solid growth.”

Days earlier, Powell had said the coronavirus posed "evolving risks to economic activity" and that the Fed would "use our tools and act as appropriate to support the economy."

Mary Ann Scully, CEO of Howard Bank, said she did not expect the Fed to move as quickly as it did. She is also skeptical about what actual effect lowering the interest rates will have since they are already historically low.

While some may speculate that political pressure — namely from President Donald Trump — forced the Fed's action, Scully said she thinks the Fed followed what other central banks across the world have already done with the hope of sending a positive signal to the marketplace.

"It will send a signal that they are taking this seriously," Scully said. "I personally don’t believe that further interest rate cuts will dramatically change the economic situation. The Fed stopped moving down their rates a few months ago because, in part, they realized the futility of using interest rate moves only to raise and boost business confidence. The virus doesn’t necessarily change that basic equation."

For banks, a reduction of the benchmark rates was not something they wanted. Rates have been historically low for several years, making it harder for banks to make money on the spreads between their deposits and loans.

While a rate cut was "not what we wished for," Scully said Howard Bank will be impacted less than many of its competitors. Howard Bank, the largest Baltimore-based bank with $1.6 billion in local deposits as of June 30, tries to be "interest-rate neutral" by taking a long-term view and not making decisions based on what it expects the Fed to do. "We believe that the bets we take should be bets on whether they will be successful, not whether rates rise or fall," Scully said. "It's about making the right underwriting decisions, not making bets on interest rates."

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