Federal Reserve Cuts Interest Rates as COVID-19 Spreads
When the United States Federal Reserve cut interest rates by a quarter-point in October, it was expected that no further cuts would occur in 2020. However, with the novel coronavirus — officially known as COVID-19 — threatening the global economy, the Fed made the rare move of adjusting their benchmark rates outside of their regular quarterly meetings. What more, as CNN reports, the agency cut rates by half a percentage point, putting the new range at 1%-1.25%.
As noted, these “emergency rate cuts” aren’t common for the Fed. In fact today’s was the first to come since 2008. Announcing the decision, the agency wrote, “The fundamentals of the U.S. economy remain strong. However, the coronavirus poses evolving risks to economic activity. 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,” adding, “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 Fed’s move comes after deep sell-offs plagued the markets last week. However Monday brought a rebound of sorts with the Dow seeing its largest single-day point gain ever. As of this writing, Tuesday’s market session has proven more volatile, rising with the Fed’s announcement and then dipping afterward (with more ups and downs following that).
Meanwhile President Trump, who has been a long-time critic of the Fed and his appointee Jerome Powell, tweeted that he was pleased with the cut but wanted even more. The President wrote, “The Federal Reserve is cutting but must further ease and, most importantly, come into line with other countries/competitors. We are not playing on a level field. Not fair to USA. It is finally time for the Federal Reserve to LEAD. More easing and cutting!” It’s also worth noting that today is Super Tuesday, with results potentially pointing to who Trump’s Democratic challenger will be in the upcoming Presidential election. Many have suggested that a strong economy would bode well for the President’s chances of seeing another four years in office, hence the emphasis Trump has placed on the market highs and unemployment lows.
Speaking to reporters, Powell noted that, while the cut won’t prevent people from becoming infected with the virus nor fix supply chain issues that have emerged due to several Chinese factories closing, “it will help boost household and business confidence.” Of course he also noted that, at this point, it’s hard to say what impacts COVID-19 will have or how long those effects will be felt for. Thus it’s far too early to say whether we’ll see more stimulatory actions or whether these cuts might be reversed were the situation to improve. Stay tuned.