The Federal Reserve cut interest rates Tuesday in a rare emergency move, responding aggressively to the growing threat the coronavirus poses to the economy and financial markets.
The Fed lowered its key federal fund rates by half a percentage point to a range of 1% to 1.25%, the central bank said in a statement. It marked the Fed’s first rate cut between scheduled meetings since the depths of the financial crisis in 2008.
Stocks swung wildly through the morning. After sliding on the absence of a more forceful response from global central banks, the Dow was up more than 100 points following the Fed’s rate cut announcement. Then the blue-chip index reversed course and was down more than 200 points in midday trading.
“The fundamentals of the U.S. economy remain strong,” the Fed’s policymaking committee said in a statement. “However, the coronavirus poses evolving risks to economic activity.”
The Fed said it’s monitoring developments “and will use its tools and act as appropriate to support the economy.” That could signal the Fed may be “leaning toward an additional rate cut” at its meeting March 17-18, Paul Ashworth, chief U.S. economist of Capital Economics, wrote in a note to clients.
Asked what developments could prompt another rate cut, Fed Chair Jerome Powell said, “I can’t point to any one thing. It’s always a range of things.”
“We saw a risk to the outlook for the economy, and we chose to act,” Powell said at a hastily called news conference. “I do know the U.S. economy is strong, and we will get to the other side of this.”
The rate cut followed a conference call early Wednesday among the finance ministers and central bankers of the G-7 nations, the world’s largest economies. A statement after the call said the officials reaffirmed they’ll use “all appropriate policy tools to achieve strong, sustainable growth and safeguard against downside risks.” The statement stopped short of announcing specific policy steps, helping push stocks lower earlier Tuesday.
The Fed’s action could mean other central banks “also may have urgent rate cuts or policy moves spring loaded” and may act throughout the day if markets tumble again, High Frequency Economics said in a research note.
Powell said central banks around the globe “have different policy situations, different mandates.”
“I think it will be up to individual countries” how they respond through interest rate or government spending stimulus policies, he said, but “there could be more focused coordination as we move forward.”
President Donald Trump, a frequent critic of the Fed and Powell, said the rate cut should have been bigger.
“The Federal Reserve is cutting but must further ease and, most importantly, come into line with other countries/competitors,” Trump tweeted. “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!”
Asked about the president’s tweet, Powell said, “W’ere always going to make our decisions in the interest of the American people. And we’re never going to consider political considerations whatsoever.”