The Federal Reserve's emergency decision to slash interest rates this week in response to the coronavirus outbreak was actually fairly straightforward, policymakers said, as economic risks piled up fast and confidence faltered.
What happens next is less clear cut.
The central bank has edged interest rates closer to zero as "insurance" against potential risks that have not actually shown up in key economic data, making its next move tough to forecast.
"That is a hard question. We are really just on the cusp of all of this and I cannot say exactly how it will play out," Chicago Federal Reserve bank president Charles Evans said on Tuesday night, on the sidelines of an event at the University of Illinois.
The Fed has a handful of options.
Cut rates further
The Fed is one of the few central banks among the world's advanced economies to have room to lower rates and still keep them above zero.
On Tuesday it brought its overnight borrowing rate down by half a percentage point to a range of 1.00-1.25%.
Many economists expect officials to cut by another quarter point when they meet in Washington on March 17-18 to issue updated economic forecasts, and make another quarter-point reduction later in the spring.
The Fed's economic forecasts will be based on both assumptions about the impact of the rate cut enacted this week and some sense of the expected course of the virus, said former Fed monetary affairs director and Yale School of Management professor Bill English.
Officials will also be looking for any sign of real change on the horizon, in terms of slower growth or higher unemployment, he said.
Further "bad news" might not warrant a Fed response, he warned, because that's almost a given. The situation would need to be worse-than-expected, English said, a difficult point to parse in a tense, fear-driven climate.
"Having eased a lot preemptively they have a bit of a communications issue about what will cause them to do more," English said.
If it enacts more rate cuts, the Fed would have little space left before it reaches what policymakers refer to as the "effective lower bound," which in this case essentially means a zero rate of interest.
Unlike its counterparts in Europe and Japan, the Fed has so far signaled no appetite for experimenting with negative rates. Should it reach that limit in the months ahead, it will likely turn to other measures to offer stimulus.
Ramp up bond purchases
The Fed has more than $4.2 trillion of assets on its balance sheet already, including more than $3.8 trillion of bonds.
During the 2008 financial crisis, it scooped up US Treasury debt and mortgage-backed securities to keep a lid on long-term interest rates and foster a recovery by making credit cheap.
It is buying government debt again now, but only shorter-dated T-bills to replenish bank reserve levels that grew too low last year, causing problems in money markets. Officials insist the current purchases are purely technical in nature, and they had hoped to scale them back beginning in the second quarter.
The recent plummeting in US bond yields to record lows seems to reflect an anticipation of lower or even negative growth for the US economy, Cornerstone Macro analysts noted, rather than an adjustment driven by fear or the lower Fed target rate, other key elements of bond pricing.
"While the Fed perceives the coronavirus as presenting a risk of recession, the market instead is increasingly perceiving recession as a base case," they wrote.
If that dire scenario becomes more likely, the Fed would probably quickly cut rates, perhaps to zero in one large move. (Recent research shows that larger rate cuts have more impact when rates are closer to zero.)
Then it would make bond purchases, which can bring down US borrowing costs even if short term interest rates are stuck at zero, academic work and policy analysis found this year.
The Fed could also choose to restart what they refer to as "large-scale asset purchases" as an additional form of stimulus.
It is unlikely these are needed to just keep interest rates low, but a side effect is the lift they often provide to riskier asset prices like stocks, which can help loosen financial conditions that have tightened as the outbreak has widened.
Roll out aggressive forward guidance
The Fed could speak about the conditions under which rates would ever rise, a suggestion many analysts, academics and former policymakers have said helps anchor business and household expectations, and improve the impact of monetary policy.
"Forward guidance," especially a pledge to remain stimulative well into the future until certain milestones are met - would reassure businesses and consumers that interest rates will not be going up any time soon.
Policymakers who have spoken since the rate cut continue to describe the economy in positive terms like strong and resilient.
Some, like Evans, have been more explicit, saying they expect a short and mild hit to economic growth, with a recovery perhaps by year's end that leaves little more than a dent.
"We will get through the coronavirus at some point," said Cleveland Federal Reserve bank president Loretta Mester in a CNBC interview on Wednesday morning. When that happens, Mester said, her expectation is that the economy will continue to move on the path anticipated before the virus hit.
Thereafter, the Fed may well leave rates low, Evans suggested. Prior to the virus outbreak, policymakers thought the previous, higher interest rate of between 1.5% and 1.75% was the right one absent some clear change to the forecast.
If a quick bounceback occurs there is no reason to raise rates back unless inflation reaches or exceeds the Fed's oft-missed 2 per cent target, said Evans. "I would be comfortable with any 'reflation' that might come from this," he said.
"Things rarely work out exactly as you plan," Evans added. "The biggest message we need to get across is we are willing to do whatever it takes," he said.