STREAMING NOW: Watch Now

Federal Reserve announces first emergency rate cut since the financial crisis

Article Image

The Federal Reserve slashed interest rates by half a percentage point on Tuesday in the wake of concerns that the coronavirus outbreak could damage the US economy.

Posted: Mar 3, 2020 6:40 PM
Updated: Mar 3, 2020 6:40 PM

The Federal Reserve slashed interest rates by half a percentage point on Tuesday, a bold attempt to give the US economy a jolt in the face of concerns about the coronavirus outbreak.

It was the first unscheduled, emergency rate cut since 2008, and it also marks the biggest one-time cut since then. The new benchmark interest rate is a range of between 1% and 1.25%.

A bad sign for the economy

Although the fundamentals of the US economy remain strong, "the coronavirus poses evolving risks to economic activity," the central bank said in a statement.

Fed Chairman Jerome Powell echoed this sentiment during his subsequent press conference Tuesday.

"We saw the risk to the outlook to the economy and chose to act," Powell said, adding that the financial markets are functioning normally, the economy continues to perform well, and that he expects the United States to fully recover after the outbreak ends.

The emergency rate cut came as somewhat of a surprise: Although the stock market soared Monday in expectation of a rate cut (the market predicted a 100% chance of a cut in March), the Fed and other central banks had seemingly pooh-poohed the notion as recently as Tuesday morning.

That whiplash signaled that the outlook for America might have been in more jeopardy than previously thought. The US stock market tumbled, with the Dow tanking as many as 608 points at its low-point on Tuesday.

"I don't think anybody knows how long it will be," Powell said, referring to the potential economic damage coronavirus could cause. "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."

Although a rate cut won't cure infections or fix broken supply chains, "it will help boost household and business confidence," Powell noted.

The potential damage to the US economy is still an unknown: Powell said any coronavirus-related slowdown would be in a very early stage, although many industries, such as travel and leisure are already reporting losses to their businesses.

The central bank did not discuss any other forms of stimulus, he said. But the market expects the Fed to continue to further slash rates to respond to coronavirus: The stock market has priced in a 60% chance of a quarter-point rate cut at the Fed's meeting in April, according the CME FedWatch Tool.

Coronavirus confusion

The G7 disappointed investors hoping for coordinated monetary policy action Tuesday morning. And just last week, several Fed officials said it was too early to cut rates in the face of the global virus outbreak. Powell released a statement on Friday saying the central bank would act as appropriate, which sounded like the central bank was taking a wait-and-see approach.

The Fed chairman on Tuesday explained the change of heart was because of the continued spread of the disease and a risk to America's economic outlook.

Economists are worried about the effect the outbreak will have on global supply chains, trade and consumer spending. The latter is the backbone of the US economy.

On Monday, the Organization for Economic Cooperation and Development warned that global growth could be cut in half if the outbreak continues to spread. Many of the world's biggest companies, including Apple and Microsoft, have issued profit and sales warnings in recent weeks because of travel restrictions, factory closures and supply chain issues.

With respect to coordinated action of multiple central banks, Powell noted that it's up to individual banks to determine whether they will act, too, as the United States just did. But he hinted further rate cuts from international central banks could be on the way. The Reserve Bank of Australia slashed rates by a quarter-percentage point on Tuesday.

"It's possible you'll see more individual action -- more action moving forward," Powell said.

"With financial markets in turmoil and evidence growing that the coronavirus is developing into a pandemic, the Fed's change of heart is entirely understandable, wrote Paul Ashworth, chief US economist at Capital Economics.

President Donald Trump, who has long advocated for lower rates, cheered the rate cut but said the Fed needed to cut further.

Minnesota Coronavirus Cases

Data is updated nightly.

Confirmed Cases: 20573

Reported Deaths: 878
CountyConfirmedDeaths
Hennepin6918534
Ramsey231697
Stearns192312
Nobles14572
Anoka116455
Dakota105935
Olmsted55110
Washington50626
Kandiyohi4541
Clay36623
Rice3652
Scott3462
Wright2401
Sherburne2081
Todd1970
Benton1662
Carver1612
Mower1501
Steele1400
Martin1245
Blue Earth1121
St. Louis11113
Pine850
Freeborn840
Winona7715
Carlton730
Nicollet683
Cottonwood620
Polk582
Otter Tail550
Itasca527
Goodhue522
Watonwan500
Chisago481
Dodge430
Meeker420
Crow Wing421
Le Sueur411
Chippewa400
Jackson390
Morrison380
Murray350
Becker320
Lyon310
Douglas290
McLeod260
Isanti250
Waseca240
Rock210
Unassigned199
Fillmore171
Mille Lacs161
Wabasha160
Swift150
Sibley120
Beltrami120
Wilkin113
Norman110
Kanabec111
Cass113
Faribault110
Brown112
Pipestone100
Marshall80
Pennington70
Pope70
Aitkin60
Wadena60
Yellow Medicine50
Koochiching50
Lincoln50
Mahnomen51
Renville50
Lac qui Parle30
Red Lake30
Big Stone30
Redwood30
Traverse30
Grant20
Houston20
Clearwater20
Hubbard10
Kittson10
Lake10
Roseau10

Iowa Coronavirus Cases

Data is updated nightly.

Confirmed Cases: 17227

Reported Deaths: 456
CountyConfirmedDeaths
Polk3714108
Woodbury255524
Black Hawk167639
Linn92775
Marshall86611
Dallas84914
Johnson5987
Muscatine54339
Wapello5004
Crawford4772
Tama39023
Louisa3347
Scott3319
Dubuque31916
Jasper25616
Buena Vista2310
Pottawattamie2106
Sioux1990
Washington1798
Allamakee1184
Wright1170
Plymouth1080
Warren1060
Story941
Poweshiek888
Bremer676
Henry611
Clinton601
Boone540
Des Moines531
Mahaska526
Cedar451
Guthrie433
Taylor370
Benton371
Jones360
Monroe334
Iowa320
Clarke320
Osceola320
Shelby310
Buchanan310
Clayton303
Marion290
Webster271
Fayette260
Hamilton260
Madison241
Monona230
Cerro Gordo221
Lee220
Winneshiek210
Davis200
Lyon190
Grundy190
Harrison190
Floyd181
Jefferson150
Cherokee150
Butler150
Mills140
Delaware140
Humboldt130
Sac130
Greene130
Keokuk130
Hardin130
Howard120
Hancock120
Appanoose123
Audubon111
Jackson110
Cass110
Ida100
Page100
Clay100
Winnebago100
Carroll90
Van Buren80
Franklin80
Dickinson80
Adair80
Chickasaw80
Kossuth70
Emmet70
Lucas60
Montgomery60
Union60
Adams50
Ringgold40
Fremont40
Pocahontas40
Mitchell40
Palo Alto30
Worth30
Unassigned30
Calhoun20
Wayne10
Decatur00
Rochester
Broken Clouds
63° wxIcon
Hi: 80° Lo: 64°
Feels Like: 63°
Mason City
Overcast
64° wxIcon
Hi: 81° Lo: 64°
Feels Like: 64°
Albert Lea
Overcast
64° wxIcon
Hi: 79° Lo: 64°
Feels Like: 64°
Austin
Overcast
66° wxIcon
Hi: 82° Lo: 66°
Feels Like: 66°
Charles City
Overcast
64° wxIcon
Hi: 81° Lo: 65°
Feels Like: 64°
Storms a brewin'
KIMT Radar
KIMT Eye in the sky

Latest Video

Image

Deciding on the return of prep sports in Iowa

Image

Sean Weather 5/24

Image

Minnesota campgrounds missing out on Memorial Day Weekend

Image

Minnesota places of worship to open this week

Image

MDVA to honor veterans virtually on Memorial Day

Image

Roosters base ball club of Rochester holds first practice

Image

Sean Weather 5/24

Image

Sean Weather 5/23

Image

Parks reopen in Rochester

Image

No summer sports for Belmond-Klemme

Community Events