In a surprise move, the Federal Reserve cut its benchmark interest rate by a sizable half-percentage point Tuesday in an effort to support the economy in the face of the spreading coronavirus. Chairman Jerome Powell said at a news conference that the virus "will surely weigh on economic activity both here and abroad for some time." It was the Fed's first move since last year, when it reduced its key short-term rate three times. It's also the first time the central bank has cut its key rate between policy meetings since the 2008 financial crisis, and it's the largest rate cut since then, reports the AP. The move, which the Fed's policy committee backed unanimously, lowered its benchmark rate to a range of 1% to 1.25%. More:
- The Dow, which had been down as much as 356 points shortly before the Fed's announcement, resumed its fall later after initially rising on the news. As of 11:45am it was down 398 points. On Monday, though, the Dow had rocketed up nearly 1,300 points—its largest percentage gain since 2009.
- At his news conference after the rate cut, Powell was asked what had changed in his view from last week, when several Fed officials said they saw no immediate need to cut rates even as stock markets endured their biggest losses since the 2008 financial crisis. The chairman replied that "we have seen a broader spread of the virus. So, we saw a risk to the economy and we chose to act."
- The AP observes: "Lower borrowing rates can lead people and businesses to borrow and spend, which can boost economic activity. But they can't directly address the problems the virus has caused—from closed factories to canceled business travel to disrupted company supply chains." Powell acknowledged that there are limits to the Fed's influence on the economy but said he believes Tuesday’s surprise rate cut would provide a "meaningful boost to the economy."
- The Fed's statement about the cut noted that it's "closely monitoring developments and their implications for the economic outlook and will use its tools and act as appropriate to support the economy," which the Wall Street Journal reads as "the prospect for further stimulus." The Fed's next scheduled policy meeting is in two weeks.
- Trump railed against the Fed early Tuesday, pushing it to make such a move. He tweeted, "Australia's Central Bank cut interest rates and stated it will most likely further ease in order to make up for China's Coronavirus situation and slowdown. They reduced to 0.5%, a record low. Other countries are doing the same thing, if not more so. Our Federal Reserve has us........paying higher rates than many others, when we should be paying less. Tough on our exporters and puts the USA at a competitive disadvantage. Must be the other way around. Should ease and cut rate big. Jerome Powell led Federal Reserve has called it wrong from day one. Sad!"
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