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Coronavirus outbreak raises risks to outlook: US Fed chief Jerome Powell

US stocks initially advanced after the announcement before sliding into losses, while the 10-year treasury yield neared 1 per cent

Bloomberg  |  Washington 

Jerome Powell
The Fed’s decision could presage a wave of easing from other central banks around the world although those in the euro-area and Japan have less scope to follow with rates already in negative territory

Federal Reserve Chairman said the outbreak had increased risks to the US outlook causing the central bank to deliver an emergency half-percentage point interest rate cut to protect the country's record economic expansion.

“My colleagues and I took this action to help the US economy keep strong in the face of new risks to the economic outlook,” he told a hastily convened press conference in Washington on Tuesday. “The spread of the has brought new challenges and risks.”

US stocks initially advanced after the announcement before sliding into losses, while the 10-year treasury yield neared 1 per cent. Fed funds futures are pricing more than a percentage point of central bank rate reductions for 2020, including another quarter-point cut in the first half of the year.

The central bank said it was “closely monitoring developments and their implications for the economic outlook and will use its tools and act as appropriate to support the economy.”


Powell, in response about the scope for further moves, said “we do like our current policy stance,” before repeating the Fed’s reference to taking action if needed.

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The Fed’s decision could presage a wave of easing from other central banks around the world although those in the euro-area and Japan have less scope to follow with rates already in negative territory. It came hours after Powell and finance chiefs from the Group of Seven nations said they would “use all appropriate policy tools to achieve strong, sustainable growth and safeguard against downside risks.” The vote for the emergency cut to a range of 1 per cent to 1.25 per cent was unanimous. The Fed also said in the statement that the “fundamentals of the US economy remain strong.”

The decision came amid public pressure for a cut by President Donald Trump, whose stewardship of the economy is central to his reelection campaign this year. Following today’s shift he called for more, demanding in a tweet that the Fed “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.”

US central bankers were scheduled to gather March 17-18 in Washington. Tuesday’s decision was the first time it had cut by more than 25 basis points since 2008.

The reduction marks a stark shift for Powell and his colleagues. They had last projected no change in rates during 2020, remaining on the sidelines during the election year, after lowering their benchmark three times in 2019 to a range of 1.5 per cent to
1.75 per cent.

The European Central Bank (ECB) will respond to the Federal Reserve’s “decisive” interest rate cut with easing of its own, according to Commerzbank AG.

First Published: Wed, March 04 2020. 01:15 IST
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