Mar 3, 2020 - Economy & Business

Fed cuts interest rate in response to coronavirus

Fed Chair Jerome Powell.

Sarah Silbiger/Getty Images

The Federal Reserve unanimously decided to cut interest rates by half-a-percentage point — a large amount — in an emergency response to the spread of coronavirus and its impact on the economy.

Why it matters: The last time the Fed announced an interest rate cut outside a regularly scheduled meeting was in the midst of the financial crisis. The rare move shows the Fed's effort to stem any impact the coronavirus poses to the record-long economic recovery.

Between the lines: Market-watchers say a rate cut is not an adequate response to the coronavirus outbreak, though it could "soften collateral damage to spending and confidence," as the Wall Street Journal puts it.

  • "Certainly, rate cuts will not help re-stock emptying grocery shelves. Monetary policy is hopeless when supply simply cannot feed demand," Seema Shah, chief strategist at asset management firm Principal Global Investors, said in a statement.

How it's playing: Stocks fell slightly after Powell's comments, giving back some of Monday's big gains. As of Tuesday morning, the S&P was teetering back into correction territory, or 10% below its record high.

What they're saying: "We do recognize a rate cut won't reduce rate of infection. We don't think we have all the answers," Fed chairman Jerome Powell told reporters on Tuesday.

  • "The ultimate solutions to this challenge will come from others, particularly health professionals. We can and will do our part, however, to keep the U.S. economy strong."

Driving the news: The sudden move Tuesday came on the heels of exhortations on Twitter by President Trump for the Fed to act — and after the Fed telegraphed on Friday that it would move soon to react to the rapidly unspooling coronavirus outbreak.

  • After the Fed's announcement, Trump said the cut wasn't enough: "More easing and cutting!" the president tweeted.
  • "We're never going to consider any political considerations whatsoever," Powell told reporters, in response to a questions about whether the rate cut was motivated by Trump's goading.
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