In an emergency move, US Fed cuts interest rates
WASHINGTON (Reuters) – The US Federal Reserve cut interest rates on Tuesday in an emergency move designed to shield the world’s largest economy from the impact of the coronavirus.
It was the Fed’s first emergency rate cut since 2008 at the height of the financial crisis, underscoring how grave the central bank views the fast-evolving situation.
In a statement, the central bank said it was cutting rates by a half percentage point to a target range of 1.00% to 1.25%.
“The fundamentals of the US economy remain strong,” the Fed said a statement. “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.”
The decision was unanimous among policy makers.
The Fed’s decision to cut interest rates before its next scheduled policy meeting on March 17-18 reflects the urgency with which the central bank feels it needs to act to prevent the possibility of a global recession.
US stocks initially surged on the move, which had increasingly been expected as it became evident the COVID-19 virus would not be contained to its epicenter in China. The outbreak has upended global supply chains and torpedoed global stock prices on fears it could cause a recession.
Equities, however, reversed many of those gains within minutes of the unscheduled announcement by the Federal Open Market Committee, the central bank’s policy arm. US Treasury debt prices surged, sending bond yields lower.
The move came in almost immediate response to US President Donald Trump, who on Tuesday called on the Fed to cut interest rates significantly, saying higher borrowing costs are tough on its exporters and puts the country at a disadvantage.
“Our Federal Reserve has us paying higher rates than many others, when we should be paying less,” Trump said. “Tough on our exporters and puts the USA at a competitive disadvantage. Must be the other way around. Should ease and cut rate big.”
Trump has repeatedly criticized Fed Chairman Jerome Powell in the recent past and has said the bank has kept interest rates too high.
Powell had earlier on Tuesday taken part in a conference call with the top finance authorities from the world’s seven largest economies, which concluded with a statement that they would take all appropriate measures to support the economy.
“I’m a little surprised. I didn’t expect that at 10 o’clock today, I thought you’d see something coordinated among central banks,” said Justin Lederer, interest rate strategist at Cantor Fitzgerald in New York.
US Treasury Secretary Steven Mnuchin told the House Ways and Means Committee that G7 finance ministers and central bank governors had agreed to “do everything possible” to limit economic harm from the coronavirus.