The Federal Reserve announced an emergency interest rate cut Tuesday, saying it was slashing its benchmark target by half a percentage point to combat the risks by the global outbreak of the coronavirus.
This was the largest move in interest rates since the Fed cut rates during the financial crisis and the first emergency cut since late 2008. Typically, the rate target only moves its rate target at scheduled meetings. The next meeting is set to begin in two weeks.
“The fundamentals of the U.S. economy remain strong. However, the coronavirus poses evolving risks to economic activity. 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 by 1/2 percentage point, to 1 to 1‑1/4 percent,” the Fed said in a statement.
In a press conference held after the announcement, Fed chair Jerome Powell said outbreak had disrupted economic activity in many countries and led to “significant movements” in financial markets.
Newsom gets hilarious reality check after turning to public for new state coin design Just in: Houston Texans Star Injured in Shooting, Forcing Team to Break Bad News Harvey Weinstein Rushed to Hospital After Heath Issues Were ‘Triggered’ Trump, DeSantis meet privately for several hours in Miami Mom of Chiefs Fan Who Froze in Friend’s Backyard Slams Investigation – ‘There Should Be Some Charges’ Catholic Organization Creates AI ‘Priest,’ Defrocks Him Almost Immediately After Public Outcry Over Specific Detail Colleges claim not all protesters getting arrested are part of their school communities: ‘Outside groups’ Defiant Kristi Noem defends killing farm pup amid criticism from Dems and GOP Director Speaks Out on ‘Scary’ Johnny Depp Remarks, Feels ‘Betrayed’ with Media Revisionism Trump and DeSantis Meet Privately in Florida for ‘Several Hours’ as VP Speculation Grows Kirby: US remains hopeful for ‘6 weeks of peace’ with hostage deal that ‘Hamas has not fully rejected’ White House denies secret plot to oust Karine Jean-Pierre as Biden faces more bad news Newsom Asks Public to Help Design New California Coin, Instantly Regrets It Fetterman blasts ‘germ of antisemitism’ in college protests, ‘living in a pup tent for Hamas’ not helpful Israel compared to Nazis and ISIS in Dearborn sermon: ‘You need to reeducate the Jews’
“The virus and the measures being taken to contain it will surely weigh on economic activity both here and abroad for some time,” Powell said.
The rate cut comes after ten days or so of mounting concerns over the coronavirus roiling financial markets. President Donald Trump has urged the Fed to take action a number of times over the past week, arguing that the central bank had to deploy a more accommodative monetary policy to deal with the economic risks because Democrats in Congress were unlikely to vote for a tax cut to stimulate growth.
Powell denied that pressure from the president had played any role in the decision to cut rates, saying the Fed had only taken into account its analysis of the economic situation in light of its mandate to foster price stability and maximum employment.
“We’re never going to consider any political considerations whatsoever. We will not do that and it’s very important that the public understand that,” Powell said.
Financial markets themselves have pressured the Fed, pushing longer-term interest rates to record lows and fed funds futures prices to reflect what amounted to a demand by investors that the Fed move off its previous “wait and see” stance.
The first U.S. deaths from the coronavirus were reported Saturday. At the time of the Fed announcement Wednesday, the death toll had climbed to 6. Some have argued that the health impacts in the U.S. are unlikely to be large and described the coronavirus as likely to be similar to a “very bad flu season.” Powell pointed out that the economic toll could still be significant.
“For us what really matters is not the epidemiology but the risks to the economy. So we saw the risks to the economy and chose to act,” Powell explains.
In his press conference, Powell said that the central bank was already seeing the effects in the travel and tourism industries and had heard concerns from businesses that rely on global supply chains. It is still too early to know how large or how long the impact on the U.S. economy will be, Powell said.
Trump responded to the cut with a call for the Fed to do more.