The Federal Reserve announced an emergency rate cut Tuesday in response to the economic impact of the coronavirus spread, trimming the nation's benchmark borrowing rate by half a percentage point.
"We do believe that our action will provide a meaningful boost to the economy," Fed Chairman Jerome Powell said at a press conference after the surprise cut, noting that the move was intended to "boost household and business confidence," mirroring action taken by central banks around the world.
"We'll get to the other side of this," he said.
The unanimous move comes after finance ministers from the G-7 convened via teleconference with Powell and Secretary of the Treasury Steven Mnuchin to determine an economic strategy to defend against any impact from the coronavirus.
"The Federal Reserve is cutting but must further ease and, most importantly, come into line with other countries/competitors," President Donald Trump tweeted shortly after the rate cut was announced Tuesday morning. "We are not playing on a level field. Not fair to USA. It is finally time for the Federal Reserve to LEAD. More easing and cutting!"
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It’s the first time since the 2008 financial crisis that the Fed has made an emergency rate cut, which it last implemented after the Lehman Brothers bank collapsed.
Trump has repeatedly lambasted the Fed calling upon it to reduce the rate to be in line with other countries who have lowered theirs. Early Tuesday morning, after the Reserve Bank of Australia cut its rate, Trump issued a tweet noting that Powell has "called it wrong from day one. Sad!"
The Fed should "cut rate big," the president noted.
“While the statement from the Federal Open Market Committee says the fundamentals of the economy remain strong, central bankers are obviously concerned about developments yet to possibly unfold,” Mark Hamrick, Bankrate.com's senior economic analyst, said. “The full emergency 50 basis points reduction is the first since the financial crisis, a sign how serious central bankers regard the downside risks to the economy.”
While the stock market has been hoping for a rate cut in order to cushion consumer spending if the coronavirus forces Americans to stay home, some analysts have pointed out that monetary policy changes are ineffectual in the face of paralyzed production lines and absent workers.
Wall Street gyrated after the surprise announcement was made, as investors tried to digest the ramifications. After Powell spoke, the Dow Jones Industrial Average tumbled by around 320 points.
“We expect similar efforts by monetary authorities around the world, with many governments also likely stepping in with fiscal stimulus as well. Nonetheless, until the virus is contained, we forecast that global economic activity will slow materially,” Atsi Sheth, managing director for credit strategy at Moody's, wrote in a note.
Both the size of the cut and the unusual timing, coming two weeks before the Federal Open Market Committee is next due to meet, on March 17-18, reflect the high level of concern among policymakers, analysts say.
Tuesday's rate move represents the largest under Trump's presidency. The Fed’s benchmark funds rate now stands at a range of 1 percent to 1.25 percent.