Not a good look for the Fed. First, R* is falling as the corona virus lowers potential GDP growth. Consequently, the Fed has to lower their target interest rate just to STAY neutral. Second, the Fed's signaling that it won't quickly respond only heightens uncertainty and... (1/2)
... as a result, further increases the demand for safe assets like treasuries. IOW, the Fed is worsening the situation--passively tightening monetary policy--by not getting ahead of this development. By doing nothing, the Fed is doing something and it ain't pretty! (2/2)
Addendum: by not acting quickly the Fed is allowing long-term treasury yields to fall which means less policy space via LSAPs or YCC once it does finally decide to act.
I see some commentators don't recognize there is a shortrun r* and a medium-to-longrun r*. An example of the latter is the Laubach-Wililams measure and typically doesn't change quickly. The short-run r* does change quickly and reflects things like liquidity demand shocks.
If it helps, don't think of short-run r* but rather the spike in safe asset yields that has driven down treasury yields to historic lows. This development is effectively a spike in real money demand & a decline in velocity of the broad money supply (that includes treasuries).
Along these lines see
@MoneyIllusion
at econlib.org/if-we-want-thi… or
@MaMoMVPY
at marketmonetarist.com/2020/02/26/the…
@MoneyIllusion
at econlib.org/if-we-want-thi… or
@MaMoMVPY
at marketmonetarist.com/2020/02/26/the…
@MoneyIllusion @MaMoMVPY I mentioned that the surge in safe asset demand (i.e. fall in treasury yields) caused by the uncertainty surrounding the corona virus can be viewed as a spike in broad money demand (i.e. drop in money velocity). This relationship is seen below in MZM velcoity & 10yr tsy yields... 
The relationship seen in this chart implies we should expect to see the MZM velocity and other similar measures of broad money use decline given the 10 year yield declines we have seen the past few days.
R* is falling fast. Here is a chart of the 5-year real treasury yield from @USTreasury thru today. Again, if Fed fails to adapt to this, then it is (1) passively tightening monetary policy and (2) feeding a self-fulfilling doom loop that can cause aggregate demand to contract.
@USTreasury The 911 comparison to the corona virus is similar on the surface, but is actually a poor guide and likely misleading. Yes, it too was a negative supply shock, but big changes to the global economy since then... @greg_ip @TheStalwart
...The world economy is much more dollarized and linked through a global financial cycle that some call a 'global dollar cycle'. It is why over the past week 10 treasury yield decline far larger for US gov't bonds than other advanced economies...
... and it is why the spillover effects of corona virus---the uncertainty, the fear, the contagion that causes a contraction in aggregate demand---is far more pronounced today in response to a global supply shock than in 2001.
