The Fed Cuts Rates in Response to Coronavirus Outbreak

March 3, 2020

The Fed Cuts Rates in Response to Coronavirus Outbreak Photo

As pricing across the Treasury bond market rapidly adjusted this year to the outbreak and spread of the coronavirus, today’s 50 basis-point rate cut by the Federal Reserve (Fed) was an appropriate response. Given the U.S. dollar’s status as the world’s reserve currency, the pressure to respond following today’s G7 emergency meeting was most intense for Fed policymakers. Fed actions have become even more consequential for an increasingly interconnected global economy.

The Fed also benefits from being one of the few central banks across the globe still able to ease policy without sending interest rates deeper into negative territory. After three 25 basis-point insurance cuts in 2019 when financial markets and the economy were performing well, Fed Chair Jerome Powell needed a more aggressive response to a near-certain slowdown in economic activity ahead. The highly uncertain impact from the virus on the record-long U.S. expansion will continue to push the Fed to err on the side of easy money and follow the lead of the bond market. 

Tags: Federal Reserve | FOMC | Coronavirus | Interest Rates | bond market

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