COVID-19 | Federal Reserve cuts key interest rate due to virus risk

Dow slides as U.S. stocks resume sell-off after the Fed move.

March 03, 2020 08:56 pm | Updated 10:15 pm IST - WASHINGTON

Federal Reserve Board chairman Jerome Powell on Capitol Hill on February 12, 2020.

Federal Reserve Board chairman Jerome Powell on Capitol Hill on February 12, 2020.

The U.S Federal Reserve implemented on March 3 an emergency rate cut, responding to the growing economic risk caused by the coronavirus epidemic and giving President Donald Trump the stimulus he has called for.

Also read | Coronavirus infects global markets, investors exit equities | Coronavirus: Full coverage

In a unanimous decision, the Fed’s policy-setting committee cut its key interest rate by a half point to a range of 1.0-1.25.

The large, highly unusual cut, taken just 15 days before the next scheduled policy meeting, reflected growing concerns that the spreading virus will take a bite out of the U.S. and global economies, as supply chains linked to China, the epicentre of the outbreak, are shut down.

While U.S. economic fundamentals “remain strong”, the “coronavirus poses evolving risks to economic activity”, the Federal Open Market Committee said in a statement.

The central bank “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 has not made an inter-meeting rate cut since late 2008, during the global financial crisis.

After the announcement, Federal Reserve chairman Jerome Powell said the emergency interest rate cut will provide a “meaningful boost to the economy” in the face of the coronavirus epidemic.

But Mr. Powell said it is unclear how long the outbreak will last, acknowledging “a rate cut will not reduce the rate of infection, it won't fix a broken supply chain”.

“We get that. We don't think we have all the answers. But we do believe that our action will provide a meaningful boost to the economy,” Mr. Powell told a press conference.

Stocks sell-off

Wall Street stocks tumbled in late-morning trading on March 3 after the Fed announcement.

Near 4.30 p.m. GMT (10 p.m. IST), the Dow Jones Industrial Average stood at 26,159.67, down nearly 550 points or 2%.

The broad-based S&P 500 slid 1.8% to 3,034.00, while the tech-rich Nasdaq Composite Index shed 1.6% to 8,805.92.

Stocks initially rallied after the Fed's surprise rate cut announcement, but equities later gyrated as investors questioned whether the move suggested the U.S. economy was on shakier ground than previously thought.

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