For the first time since the financial crisis more than a decade ago, the Federal Reserve issued an emergency rate cut in a last-ditch attempt to jolt the United States economy. The move was made to counter the effects of the global economic slowdown, which had been exacerbated by the ongoing concerns over the recent viral outbreak in China.
The interest rate cut, which was made on Tuesday, was the first unscheduled cut since 2008. The move was also the biggest-ever one-time cut conducted by the agency in more than a decade. The Federal Reserve officially slashed interest rates by half a percentage point, making the new benchmark interest rate at a range of 1 percent and 1.25 percent.
During a press conference held after the emergency rate cut, Federal Reserve Chairman Jerome Powell stated that the fundamental of the US economy still remained strong, but the agency has been forced to slash rates given the evolving risks to economic activity brought about the continued spread of the novel coronavirus.
Powell added that the risk to the outlook of the country's economy is still present but he does expect the US to fully recover after the outbreak blows over. He further assured everyone that the country's financial markets and its economy are continuing to perform well despite the circumstances.
The Federal Reserve admitted that the rate cut will likely not help broken supply chains and those directly affected by the recent viral outbreak, but it hopes that it could at least help boost household and business confidence. Powell admitted that the full economic damage of the outbreak is still unknown and when exactly it would end still remains a big question.
Investors did already expect the Federal Reserve to impose a rate cut, which is why US stocks had soared on Monday. Most had expected the cut to be announced sometime this month, but almost all did not expect it to be so sudden and without warning.
The sudden rate cut has been seen by some analysts as a bad sign for the US economy. Analysts have stated that the move could indicate that the economy may be in more trouble than previously thought.
Following the announcement on Tuesday, major US stocks dipped. The Dow Jones Industrial Average for one lost as much as 608 points at its lowest point during the day. Economists expect that the Federal Reserve will likely continue to slash rates if the situation gets worst. According to CME FedWatch, there is a 60 percent chance that the Federal Reserve could cut rates by a quarter-point during its meeting in April.
