The Federal Reserve announced Tuesday they were slashing interest rates by a half a percentage point as markets continue to absorb the potential impact of the novel coronavirus that has disrupted supply chains and worldwide travel as health officials around the world prepare for a pandemic.
The emergency meeting by the federal reserve resulted in a half of a point cut on the overnight benchmark lending rate, making it the first such unscheduled emergency rate cut since the financial crisis in 2008. The cut is also the biggest one-time rate cut since 2008.
The new benchmark interest rate is now 1% to 1.25%.
"The fundamentals of the U.S. economy remain strong," the Federal Reserve said in a statement on its website. "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 by 1/2 percentage point, to 1 to 1‑1/4 percent. 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."
Fed Chairman Jerome Powell said in a press conference Tuesday that they acted after seeing the risk of the coronavirus to the economy and chose to act. However, he did not say when the Fed might raise interest rates again.
"I don't think anybody knows how long it will be," Powell said. "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."
The rate cut was done to help "boost household and business confidence," Powell noted.
President Donald Trump, who has been a big cheerleader for lower rates in the past, applauded the Fed's rate cut Tuesday morning, but said they needed to do more.
"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!" Trump wrote on Twitter.
The novel coronavirus, dubbed COVID-19 has infected more than 89,000 people worldwide with the death toll at more than 3,100 people. Many of the world's biggest companies have issued warnings about profit and sales in recent weeks as travel restrictions and factory closures cripple their supply chains. Economists are also worried about changing consumer sentiment, that could turn negative due to a severe outbreak of the disease.
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