The U.S. Federal reserve has cut rates by half a percentage point to combat the coronavirus-driven sell-off
The U.S. Federal reserve has cut rates by half a percentage point to combat the coronavirus-driven selloff.
The emergency cut has already sent U.S. stocks surging after last week’s market downturn. The Dow Jones had suffered its worst week since the 2008 financial crisis, dropping 12 per cent by last Friday. The rate cut, unanimously agreed upon by Fed members, was made to protect the decade-long bull market from coronavirus driven risks.
“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 by 1/2 percentage point.”
The press release from the Fed insisted that the U.S. economy is fundamentally strong. The central bank says it will closely monitor developments and “act as appropriate to support the economy”.
Finance chiefs from the Group of Seven nations earlier said they would “use all appropriate policy tools to achieve strong, sustainable growth and safeguard against downside risks.”
The emergency move is rare but not unprecedented. The last time the decision was made was in 2008, when two cuts were implemented amid the financial crisis. The first was made on January 22 when the Fed cut its key rate by 75 basis points to 3.5% after stock markets tumbled amid signs of a U.S. recession. The September collapse of Lehman Brothers Holding Inc then prompted the Fed to cut the federal funds rate by 50 basis points to 1.5% as part of a coordinated action.
