Feb 28, 2020 - Economy & Business

Federal Reserve: Coronavirus poses "evolving risk" to the economy

Federal Reserve chairman Jerome Powell. Photo: Sarah Silbiger/Getty Images

Federal Reserve chairman Jerome Powell took the rare move Friday of issuing a statement meant to reassure investors, one that opened the door to a possible interest rate cut.

Why it matters: The Fed rarely issues statements like this outside of policy meetings and scheduled public appearances. It came as the stock market continues its steep decline this week. Stocks briefly pared some losses after the 2:30 p.m. EST statement came out.

"The fundamentals of the U.S. economy remain strong. However, the coronavirus poses evolving risks to economic activity. The Federal Reserve is closely monitoring developments and their implications for the economic outlook. We will use our tools and act as appropriate to support the economy."
— Jerome Powell, in a statement

Between the lines: In recent days, traders piled on bets that the Fed would change its wait-and-see stance and cut interest rates in mid-March because of the coronavirus.

  • Bank of America predicted Friday that the Fed would trim rates by 50 basis points, considered an emergency measure.

Go deeper: The growing coronavirus recession threat

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Fed cuts interest rates to near zero in emergency coronavirus intervention

Photo: Mark Makela/Getty Images

The Federal Reserve on Sunday cut its benchmark interest rate to almost zero and launched a $700 billion quantitative easing program in response to the expected economic downturn and stock market slump caused by the coronavirus.

Why it matters: This is the most drastic measure the Fed could take to try to shield the economy amid a global pandemic. The central bank hasn’t made moves this dramatic since the financial crisis.

Go deeperArrowUpdated Mar 15, 2020 - Economy & Business

Goldman Sachs expects a full percentage point of rate cuts from the Fed

Fed Chairman Jerome Powell. Photo: Sarah Silbiger/Getty Images

Fed chair Jerome Powell's statement on Friday afternoon that the U.S. central bank was "closely monitoring developments" and would "act as appropriate to support the economy" has eliminated any doubt that the Fed will cut U.S. interest rates at its meeting on March 17–18.

What we're hearing: "A Fed cut in March appears nearly certain," analysts at Goldman Sachs said in a late Sunday note to clients.

Fed cuts interest rate in response to coronavirus

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.