>> Jeanna Smialek, The New York Times
Published: 2020-03-03 23:57:01 BdST
“The coronavirus poses evolving risks to economic activity,” the Fed said. “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.”
The statement on the vote, which was unanimous, also pledged that the Fed “is closely monitoring developments and their implications for the economic outlook and will use its tools and act as appropriate to support the economy.”
Rates are now set in a range of 1% to 1.25%. Jerome H. Powell, the Fed chairman, was scheduled to hold a news conference later Tuesday in Washington, the central bank said.
The move came as economists around the globe were sharply downgrading their economic growth expectations for the year as the coronavirus spreads, idling factories, curtailing travel and quarantining workers. Investors, increasingly nervous that the fallout could plunge the global economy into a recession, looked to central banks, first among them the Fed, to respond decisively to the building threat.
US stocks rallied after the Fed said it would cut interest rates. The S&P 500 spiked more than 1% immediately after the cut was announced, turning around a downbeat start to the trading day after a statement from the Group of 7 finance ministers and central bankers did not suggest imminent action.
Emergency rate cuts are not without precedent. The Fed’s move Tuesday echoed a 50-basis-point rate cut it made in October 2008 as markets melted down in the wake of the collapse of Lehman Brothers and another it made earlier that year.
But this time, the central bank moved preemptively — trying to get ahead of the economic problem, rather than waiting until the fallout was more fully realised.
This cut leaves the central bank with limited room to lower rates further should the economy run into danger. Going into the 2007 to 2009 recession, the Fed cut rates from above 5%. Now it will have just four quarter-point moves left at its disposal.
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