Fed Makes Emergency Rate Cut to Shield Economy From Coronavirus Impact

March 3, 2020 Updated: March 3, 2020
FONT BFONT SText size

The Federal Reserve, in a rare emergency step, cut short-term rates by half a percentage point on March 3 to protect the U.S. economy from the growing impact of the global coronavirus outbreak.

The half-point cut is the biggest in more than a decade and prompted a jump on the major stock indexes.

“The fundamentals of the U.S. economy remain strong. However, the coronavirus poses evolving risks to economic activity,” the bank said in a statement. “The Committee 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 Dow Jones Industrial Average rose 172 points, or 0.6 percent as of 10:10 a.m. Eastern time. It had been down as much as 356 points shortly before the announcement. The Dow surged 5 percent Monday in anticipation of moves by the Fed and other central banks to support the global economy following the worst week for stocks since the financial crisis of 2008.

Investors have been eyeing the Federal Reserve as the coronavirus outbreak began to take a toll on the markets last week. Stocks rebounded on Monday, but dropped again early on Tuesday before the central bank moved to cut rates.

The Fed made the move one day after President Donald Trump renewed his criticism of the bank’s policies.

“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 percent, a record low. Other countries are doing the same thing, if not more so,” Trump wrote on Twitter.

“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!” the president added.

The president has regularly criticized the Fed since July 2018. The central bank repeatedly raised rates after Trump took office after keeping rates at a virtual zero throughout the administration of Barack Obama. The Fed policy caused the markets to plunge at the end of 2018, prompting the bank to reverse course. The Fed cut rates three times in 2019.

The current short-term rates are now between 1 and 1.25 percent, a range not seen since mid-2017.

Emel Akan and The Associated Press contributed to this report.

 

Follow Ivan on Twitter: @ivanpentchoukov