By Sam Goldfarb 

Investors have dramatically reassessed the chances that the Federal Reserve will lower interest rates as soon as next month, betting the coronavirus will force the central bank's hand despite recent statements from officials indicating they aren't yet convinced that action is needed.

Federal-funds futures, which traders use to bet on the path of central-bank policy, showed midday Thursday that investors thought there was a 72% chance the Fed will lower its key policy rate by a quarter-percentage point at its March 17-18 meeting, according to CME Group data. That was up from just 9% a week ago,

Investors also saw an 89% chance the Fed will cut rates by at least 0.50 percentage point by the end of its July meeting and a 57% chance it will cut rates 0.75 percentage point by that time.

In a speech Tuesday, Fed Vice Chairman Richard Clarida said disruptions from the viral outbreak in China "could spill over to the rest of the global economy" but that it is too soon to "even speculate about either the size or the persistence of these effects, or whether they will lead to a material change in the outlook."

Minneapolis Fed President Neel Kashkari said this week that he didn't "see any urgent need to move until we have more information." Dallas Fed President Robert Kaplan said officials are "weeks away from being able to make the judgment" about whether a rate change is needed.

Some analysts have said that interest-rate cuts could have limited power to repair economic damage caused by the coronavirus because lower rates -- which are meant to encourage investment -- can do little to open closed factories or encourage people to leave their homes.

Others argue that rate cuts could have a significant impact in part by preventing panic on Wall Street.

Investors' confidence that the Fed will cut rates is evident in the low yields on U.S. government bonds. Investors are willing to buy two-year Treasury notes, for example, even though they yield significantly less than short-term rates set by the Fed -- a circumstance that can lead to losses for many traders.

As it stands, the Fed's key policy rate is set between 1.5% and 1.75%, while the two-year Treasury note is yielding around 1.1%, according to Tradeweb.

Write to Sam Goldfarb at sam.goldfarb@wsj.com

(END) Dow Jones Newswires

February 27, 2020 13:40 ET (18:40 GMT)