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: 587049

Reported Deaths: 9287
CountyCasesDeaths
Marion810691296
Lake44121665
Allen31797541
Hamilton28178303
St. Joseph26684369
Elkhart24057340
Vanderburgh18519213
Tippecanoe17305121
Johnson14398284
Porter14342159
Hendricks13793241
Madison10509212
Vigo10432171
Clark10151129
Monroe9029108
Delaware8782129
LaPorte8721153
Kosciusko784677
Howard7834137
Warrick636790
Hancock633297
Bartholomew624294
Floyd6098105
Wayne5903156
Grant5799109
Dubois541670
Boone531467
Morgan512388
Marshall492484
Henry491164
Cass469060
Noble458757
Dearborn454544
Jackson413145
Shelby401178
Lawrence379475
Clinton363639
Gibson355056
DeKalb336363
Montgomery333851
Harrison326042
Knox325439
Miami308243
Steuben304940
Adams294435
Whitley292325
Wabash291645
Ripley290845
Putnam282447
Huntington281257
Jasper280733
White265738
Daviess260772
Jefferson248538
Fayette241348
Decatur241282
Greene232460
Posey230026
Wells228547
LaGrange223461
Clay216432
Scott216437
Randolph207540
Jennings191335
Sullivan188531
Spencer179917
Fountain178625
Washington175018
Starke170741
Jay162021
Fulton158829
Owen157837
Carroll151315
Orange150533
Rush148118
Perry145327
Vermillion144333
Franklin142533
Parke12788
Tipton127332
Pike113125
Blackford107022
Pulaski94637
Newton89020
Brown85530
Benton84110
Crawford7479
Martin69213
Warren6537
Switzerland6175
Union6063
Ohio4647
Unassigned0374

Ohio Coronavirus Cases

Data is updated nightly.

Cases: 821507

Reported Deaths: 10135
CountyCasesDeaths
Franklin96935704
Cuyahoga81526972
Hamilton60913438
Montgomery41445399
Summit33096726
Lucas29981591
Butler29513227
Stark24608400
Warren18792139
Lorain17916207
Mahoning16710335
Lake15255135
Clermont15053104
Delaware1374277
Licking12595132
Trumbull12352301
Fairfield1211380
Greene11532132
Medina11033165
Clark10557264
Wood9901154
Allen9481126
Portage8802105
Miami880173
Richland8748116
Marion7305113
Tuscarawas7095174
Columbiana7047124
Pickaway699850
Wayne6729162
Muskingum665342
Erie5866117
Hancock537090
Ross526087
Scioto514862
Geauga478255
Darke456089
Ashtabula437268
Union429228
Lawrence428951
Mercer423387
Sandusky419062
Seneca411755
Auglaize410959
Huron409138
Shelby408521
Jefferson400466
Belmont392840
Washington367940
Putnam363672
Athens36229
Madison337928
Knox334922
Ashland329138
Fulton324243
Defiance317078
Crawford311968
Preble310034
Brown294419
Logan291829
Ottawa280534
Clinton278143
Williams268966
Highland261318
Jackson255243
Guernsey239425
Champaign239227
Fayette224529
Morrow22194
Perry220517
Holmes217562
Henry208847
Hardin203032
Coshocton197120
Van Wert196244
Wyandot189949
Gallia189126
Adams165515
Pike163416
Hocking161923
Carroll148016
Paulding139021
Noble117540
Meigs102421
Monroe95227
Harrison8578
Morgan78227
Vinton65613
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