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Fed Slashes Interest Rates as Coronavirus Fears Mount Fed Slashes Interest Rates in Emergency Move as Coronavirus Fears Mount
(33 minutes later)
The Federal Reserve slashed interest rates on Tuesday as fears about the economic fallout of the coronavirus mounted. The Federal Reserve slashed interest rates on Tuesday as fears about the economic fallout of the coronavirus continued to mount, announcing its biggest single cut since the depths of the 2008 financial crisis.
“The coronavirus poses evolving risks to economic activity,” the Fed said in a statement. “In light of these risks and in support of achieving its maximum employment and price stability goals, the Federal Open Market Committee decided today to lower the target range for the federal funds rate.”“The coronavirus poses evolving risks to economic activity,” the Fed said in a statement. “In light of these risks and in support of achieving its maximum employment and price stability goals, the Federal Open Market Committee decided today to lower the target range for the federal funds rate.”
The statement on the vote, which was unanimous, also pledged that the Fed “is closely monitoring developments and their implications for the economic outlook and will use its tools and act as appropriate to support the economy.”The statement on the vote, which was unanimous, also pledged that the Fed “is closely monitoring developments and their implications for the economic outlook and will use its tools and act as appropriate to support the economy.”
Rates are now set in a range of 1 percent to 1.5 percent, as of the decision. Rates are now set in a range of 1 percent to 1.25 percent, as of the decision. Jerome H. Powell, the Fed chairman, will hold a news conference at 11 a.m. in Washington, the central bank said.
Stocks in the United States rallied after the Fed said it would cut interest rates. After opening lower, the S&P 500 spiked more than 1 percent immediately after the cut was announced The move came as economists around the globe were sharply downgrading their economic growth expectations for the year as the coronavirus spreads, idling factories, curtailing travel and quarantining workers. Investors, increasingly nervous that the fallout could plunge the global economy into a recession, looked to central banks, first among them the Fed, to respond decisively to the building threat.
The move underlines what a fraught moment economic policymakers in the United States and around the world currently face. Coronavirus has torn across the globe, sickening about 90,000 people. While the vast majority of those are still in China, where the infections first surfaced, major outbreaks have also taken hold in South Korea, Japan, Iran and Italy, and cases are climbing in other countries. Stocks in the United States rallied after the Fed said it would cut interest rates. The S&P 500 spiked more than 1 percent immediately after the cut was announced, turning around a downbeat start to the trading day after a statement from the Group of 7 finance ministers and central bankers did not suggest imminent action.
The Fed’s emergency move underlines what a fraught moment economic policymakers around the world currently face. Coronavirus has torn across the globe, sickening about 90,000 people. While the vast majority of those cases are in China, where the infections first surfaced, major outbreaks have also taken hold in South Korea, Japan, Iran and Italy, and cases are climbing in other countries.
The virus could exact a heavy economic toll, as it leads to quarantines, shutters factories, and hits investor and consumer confidence.The virus could exact a heavy economic toll, as it leads to quarantines, shutters factories, and hits investor and consumer confidence.
Stocks bled through their worst losses since 2008 last week, but rebounded Monday as expectations for central bank action climbed. Stocks bled through their worst losses since 2008 last week, but rebounded Monday as expectations for action from the central bank climbed.
While they can bolster confidence and help to keep borrowing cheap, there are questions about how effective rate cuts will ultimately be in counteracting the virus fallout. Central banks cannot keep disease from spreading, prevent workers from losing hours at work, or mend broken supply chains amid factory delays. Emergency rate cuts are not without precedent. The Fed’s move Tuesday echoed a 50 basis point rate cut it made in October 2008 as markets melted down in the wake of the collapse of Lehman Brothers, and another it made earlier that year.
President Trump, who has no control over monetary policy, has been urging the Fed to lower interest rates when asked about the virus’ potential economic fallout. But this time, the central bank moved pre-emptively — trying to get ahead of the economic problem, rather than waiting until the fallout was more fully realized.
There are limits to what rate cuts can do to contain the damage. While they can bolster confidence and help to keep borrowing cheap, there are questions about how effective rate cuts will be in counteracting the fallout from the virus. Central banks cannot keep disease from spreading, prevent workers from losing hours at work, or mend broken supply chains amid factory delays.
And this cut leaves the central bank with limited room to lower rates further should the economy run into danger. Going into the 2007 to 2009 recession, the Fed cut rates from above 5 percent. Now it will have just four quarter-point moves left at its disposal.
President Trump, who has no control over monetary policy, has been urging the Fed to lower interest rates when asked about the potential economic fallout from the virus.
“As usual, Jay Powell and the Federal Reserve are slow to act,” he wrote on Twitter Monday.“As usual, Jay Powell and the Federal Reserve are slow to act,” he wrote on Twitter Monday.