The U.S. Federal Reserve slashed interest rates by 50 bps on Tuesday citing concerns about the coronavirus outbreak against the bleak economy. The last time the central bank slashed rates by leveraging an “emergency rate shift” by half a percentage point was after Lehman Brothers filed for bankruptcy in 2008. The announcement didn’t have a favorable effect on the stock market and the Dow shed close to 800 points after Fed Chairman Jerome Powell announced the cut.
It’s safe to say that global markets have been shaken by the coronavirus crisis and governments and central banks worldwide are reacting. Last week U.S. stock markets were extremely bloody and assets like precious metals and cryptocurrencies took a hit too. On Monday the Dow Industrial Jones saw a 1,200-point advance as it seemed like a recovery was on the cards.
However, on Tuesday as coronavirus fears continued to extend across the globe, the U.S. Federal Reserve cut interest rates by 50 bps and explained it was due to the coronavirus crisis and the overall “outlook” of the economy. Almost immediately after the Fed’s announcement, all three major stock indices dropped significantly percentage-wise and the Dow lost close to 800 points.
“We saw the risk to the outlook to the economy and chose to act,” Powell told reporters on Tuesday. “I don’t think anybody knows how long it will be,” he added. “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.”