Federal Reserve announces first emergency rate cut since the financial crisis

The Federal Reserve slashed interest rates by half a percentage point on Tuesday in the wake of concerns that the coronavirus outbreak could damage the US economy.

Posted: Mar 3, 2020 7:40 PM
Updated: Mar 3, 2020 7:40 PM

The Federal Reserve slashed interest rates by half a percentage point on Tuesday, a bold attempt to give the US economy a jolt in the face of concerns about the coronavirus outbreak.

It was the first unscheduled, emergency rate cut since 2008, and it also marks the biggest one-time cut since then. The new benchmark interest rate is a range of between 1% and 1.25%.

A bad sign for the economy

Although the fundamentals of the US economy remain strong, "the coronavirus poses evolving risks to economic activity," the central bank said in a statement.

Fed Chairman Jerome Powell echoed this sentiment during his subsequent press conference Tuesday.

"We saw the risk to the outlook to the economy and chose to act," Powell said, adding that the financial markets are functioning normally, the economy continues to perform well, and that he expects the United States to fully recover after the outbreak ends.

The emergency rate cut came as somewhat of a surprise: Although the stock market soared Monday in expectation of a rate cut (the market predicted a 100% chance of a cut in March), the Fed and other central banks had seemingly pooh-poohed the notion as recently as Tuesday morning.

That whiplash signaled that the outlook for America might have been in more jeopardy than previously thought. The US stock market tumbled, with the Dow tanking as many as 608 points at its low-point on Tuesday.

"I don't think anybody knows how long it will be," Powell said, referring to the potential economic damage coronavirus could cause. "I know the US economy is strong and we'll get to the other side of this and return to solid growth and a solid labor market as well."

Although a rate cut won't cure infections or fix broken supply chains, "it will help boost household and business confidence," Powell noted.

The potential damage to the US economy is still an unknown: Powell said any coronavirus-related slowdown would be in a very early stage, although many industries, such as travel and leisure are already reporting losses to their businesses.

The central bank did not discuss any other forms of stimulus, he said. But the market expects the Fed to continue to further slash rates to respond to coronavirus: The stock market has priced in a 60% chance of a quarter-point rate cut at the Fed's meeting in April, according the CME FedWatch Tool.

Coronavirus confusion

The G7 disappointed investors hoping for coordinated monetary policy action Tuesday morning. And just last week, several Fed officials said it was too early to cut rates in the face of the global virus outbreak. Powell released a statement on Friday saying the central bank would act as appropriate, which sounded like the central bank was taking a wait-and-see approach.

The Fed chairman on Tuesday explained the change of heart was because of the continued spread of the disease and a risk to America's economic outlook.

Economists are worried about the effect the outbreak will have on global supply chains, trade and consumer spending. The latter is the backbone of the US economy.

On Monday, the Organization for Economic Cooperation and Development warned that global growth could be cut in half if the outbreak continues to spread. Many of the world's biggest companies, including Apple and Microsoft, have issued profit and sales warnings in recent weeks because of travel restrictions, factory closures and supply chain issues.

With respect to coordinated action of multiple central banks, Powell noted that it's up to individual banks to determine whether they will act, too, as the United States just did. But he hinted further rate cuts from international central banks could be on the way. The Reserve Bank of Australia slashed rates by a quarter-percentage point on Tuesday.

"It's possible you'll see more individual action -- more action moving forward," Powell said.

"With financial markets in turmoil and evidence growing that the coronavirus is developing into a pandemic, the Fed's change of heart is entirely understandable, wrote Paul Ashworth, chief US economist at Capital Economics.

President Donald Trump, who has long advocated for lower rates, cheered the rate cut but said the Fed needed to cut further.

Indiana Coronavirus Cases

Data is updated nightly.

Cases: 750432

Reported Deaths: 13764
CountyCasesDeaths
Marion1031991782
Lake556411007
Allen41662691
St. Joseph36974564
Hamilton36561417
Elkhart29390459
Tippecanoe22886225
Vanderburgh22549400
Porter19348325
Johnson18432388
Hendricks17608317
Clark13206193
Madison13139344
Vigo12608253
LaPorte12415221
Monroe12188175
Delaware10954198
Howard10285225
Kosciusko9619119
Hancock8562145
Bartholomew8164157
Warrick7856156
Floyd7781180
Grant7232179
Wayne7160201
Boone6939103
Morgan6746141
Dubois6214118
Marshall6208116
Cass6000109
Dearborn589578
Henry5895109
Noble580787
Jackson508975
Shelby500896
Lawrence4738122
Gibson444593
Clinton441455
Harrison441073
DeKalb439485
Montgomery436390
Whitley406343
Huntington402481
Steuben399759
Miami393169
Jasper387454
Knox375890
Putnam372160
Wabash360683
Ripley346970
Adams345355
Jefferson335785
White331553
Daviess3033100
Wells295181
Decatur289992
Greene286885
Fayette284864
Posey273835
LaGrange273072
Scott270156
Clay266448
Washington245234
Randolph244783
Jennings235349
Spencer234431
Starke227958
Fountain220348
Sullivan214343
Owen211658
Fulton202142
Jay200932
Carroll193420
Orange188155
Perry187137
Rush175826
Vermillion174644
Franklin170335
Tipton166146
Parke149316
Pike138234
Blackford136232
Pulaski120547
Newton113736
Brown104043
Crawford102316
Benton101414
Martin91615
Warren83815
Switzerland8118
Union72810
Ohio57811
Unassigned0420

Ohio Coronavirus Cases

Data is updated nightly.

Cases: 1108146

Reported Deaths: 20122
CountyCasesDeaths
Franklin1286421460
Cuyahoga1157382208
Hamilton813551248
Montgomery525311041
Summit48395999
Lucas43343818
Butler38951604
Stark33318929
Lorain25658504
Warren24580303
Mahoning22355603
Lake21166387
Clermont20111253
Delaware18841135
Licking16660222
Fairfield16570204
Trumbull16537482
Medina15603271
Greene15272247
Clark14233306
Wood13287198
Portage13242214
Allen11910239
Richland11601211
Miami10843224
Wayne9130222
Columbiana9029230
Muskingum8906135
Pickaway8658122
Tuscarawas8643248
Marion8641138
Erie8056164
Ashtabula7147179
Hancock6996132
Ross6943161
Geauga6834150
Scioto6534105
Belmont6155174
Union584549
Lawrence5726102
Jefferson5675158
Huron5544122
Sandusky5439125
Darke5415129
Seneca5347126
Washington5318109
Athens523660
Auglaize501887
Mercer487385
Shelby476595
Knox4570112
Madison444065
Ashland435597
Putnam4336103
Defiance432298
Fulton432072
Crawford4036110
Brown402461
Logan387577
Preble3848104
Clinton379166
Ottawa373581
Highland359665
Williams348078
Champaign344258
Guernsey324853
Jackson318154
Perry297350
Morrow291840
Fayette285450
Hardin274965
Henry273367
Holmes2699101
Coshocton268960
Van Wert247264
Adams243156
Pike242835
Gallia240750
Wyandot234556
Hocking220162
Carroll197148
Paulding176542
Meigs148240
Monroe136344
Noble136039
Harrison114138
Morgan109624
Vinton85517
Unassigned03
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