Budapest Post

Cum Deo pro Patria et Libertate
Budapest, Europe and world news

Coronavirus fears outweigh US Fed’s surprise rate cut as stocks plunge nearly 3 per cent

Coronavirus fears outweigh US Fed’s surprise rate cut as stocks plunge nearly 3 per cent

Half-percentage point emergency cut is the largest since the 2008 financial crisis amid growing concerns that the virus poses an outsize threat to the economy. US stock markets plummet as uncertainty caused by Covid-19 outweighs stimulus

The US Federal Reserve made an emergency interest rate cut of half a percentage point on Tuesday in an effort to support the economy in the face of the spreading coronavirus.

It was the Fed’s biggest rate cut since December 2008, during the financial crisis.

Morgan Stanley researchers led by Ellen Zentner said in a report on Tuesday that “policymakers are not waiting for financial conditions to tighten before acting, as they did last year”.

“They are pre-empting potentially significant financial market disruptions that could amplify downside effects from economic disruptions resulting from the coronavirus.”

But US stock markets were down sharply on Tuesday. The Dow Jones Industrial Average dropped nearly 800 points, or 2.94 per cent, while the S&P 500 and Nasdaq also fell by almost 3 per cent.



“We expect markets to remain volatile,” said Mark Haefele, chief investment officer at UBS Global Wealth Management.

“The unfolding nature of the coronavirus threat – both real and perceived — is not yet quantifiable and, as such, the current global policy response can't immediately be judged as sufficient or insufficient for restoring investor confidence in the short term.”

At a news conference, Powell said the virus “poses evolving risks to economic activity.” As it continues to spread, he said, “the risks to the US outlook have changed materially”, signalling a growing concern that it poses an escalating threat and could hit the global economy harder than previously expected.

The negative market reaction indicates the fear the spreading contagion may exert on global growth.

Even after Powell’s announcement, US President Donald Trump urged that the central bank must do even more.

“The Federal Reserve is cutting but must further ease,” Trump said on Twitter. “It is finally time for the Federal Reserve to LEAD. More easing and cutting!”

Even before the Fed’s action, economists had been cautioning that lower interest rates were not the ideal prescription for the threat posed by Covid-19, the pneumonia-like disease caused by the coronavirus.

Lower rates can lead people and businesses to borrow and spend, which can boost economic activity. But they cannot directly address the problems that the virus has caused – from closed factories to cancelled business travel to disrupted supply chains.

Zentner at Morgan Stanley said that although the rate cut would not be effective in dealing with public health or supply chain issues, “where easier Fed policy would help is to boost the economy, and particularly to support accommodative financial conditions and avoid tight financial conditions”.

The researchers said they expected the Fed to cut the benchmark rate further. “Following today’s action, we are expecting the Fed to deliver a 25 basis point interest rate cut at its April meeting,” they said.

Powell said the Fed would not rule out further actions “especially if increased [coronavirus] testing in the United States results in rising case counts that leads to more volatility and uncertainty”.

Globally, the seven major economies, or G7, pledged on Tuesday to use “all appropriate tools” to deal with the spreading contagion.

The group of major industrial countries – Italy, Germany, Japan, Canada, France, the US and Britain – said it was “ready to take actions, including fiscal measures where appropriate, to aid in the response to the virus and support the economy”.

The joint statement followed an emergency conference call among the finance ministers and central bank presidents, led by Powell and US Treasury Secretary Steven Mnuchin.



The G7 has issued similar joint statements during periods of extreme market turmoil, such as after the 9/11 terrorist attacks and the 2008 financial crisis.

The Dow plunged 11 per cent last week in its worst week since 2008.

“Given the potential impacts of Covid-19 on global growth, we reaffirm our commitment to use all appropriate policy tools to achieve strong, sustainable growth and safeguard against downside risks,” the G7 said.

On Monday, the Organisation for Economic Cooperation and Development (OECD) lowered its forecasts for global growth in 2020 by half a percentage point, to 2.4 per cent – and said the figure could go as low as 1.5 per cent if the outbreak is sustained and widespread.

The OECD said the coronavirus – which was first reported in China in December but has spread to 60 nations in Europe, the US, Latin America and other parts of Asia – could cause the world economy to shrink this quarter for the first time since the financial crisis that began in 2008.

AI Disclaimer: An advanced artificial intelligence (AI) system generated the content of this page on its own. This innovative technology conducts extensive research from a variety of reliable sources, performs rigorous fact-checking and verification, cleans up and balances biased or manipulated content, and presents a minimal factual summary that is just enough yet essential for you to function as an informed and educated citizen. Please keep in mind, however, that this system is an evolving technology, and as a result, the article may contain accidental inaccuracies or errors. We urge you to help us improve our site by reporting any inaccuracies you find using the "Contact Us" link at the bottom of this page. Your helpful feedback helps us improve our system and deliver more precise content. When you find an article of interest here, please look for the full and extensive coverage of this topic in traditional news sources, as they are written by professional journalists that we try to support, not replace. We appreciate your understanding and assistance.
Newsletter

Related Articles

0:00
0:00
Close
Altman Says GPT-5 Already Outpaces Him, Warns AI Could Automate 40% of Work
Russian Research Vessel 'Yantar' Tracked Mapping Europe’s Subsea Cables, Raising Security Alarms
Global Cruise Industry Posts Dramatic Comeback with 34.6 Million Passengers in 2024
U.S. Demands Brussels Scrutinize Digital Rules to Prevent Bias Against American Tech
Private Equity’s Fundraising Surge Triggers Concern of European Market Shake-Out
Tokyo’s Jimbōchō Named World’s Coolest Neighbourhood for 2025
European Officials Fear Trump May Shift Blame for Ukraine War onto EU
The Personality Rights Challenge in India’s AI Era
Italy Considers Freezing Retirement Age at 67 to Avert Scheduled Hike
Italian City to Impose Tax on Visiting Dogs Starting in 2026
Study Finds No Safe Level of Alcohol for Dementia Risk
Trump Says Ukraine Can Fully Restore Borders with NATO Backing
Europe Signals Stronger Support for Taiwan at Major Taipei Defence Show
Germany Weighs Excluding France from Key European Fighter Jet Programme
Cyberattack Disrupts Check-in and Boarding Systems at Major European Airports
Björn Borg Breaks Silence: Memoir Reveals Addiction, Shame and Cancer Battle
When Extremism Hijacks Idealism: How the Baader-Meinhof Gang Emerged and Fell
JWST Data Brings TRAPPIST-1e Closer to Earth-Like Habitability
Trump Orders $100,000 Fee on H-1B Visas and Launches ‘Gold Card’ Immigration Pathway
France’s Looming Budget Crisis and Political Fracture Raise Fears of Becoming Europe’s “Sick Man”
Three Russian MiG-31 Jets Breach Estonian Airspace in ‘Unprecedentedly Brazen’ NATO Incident
European manufacturers against ban on polluting cars: "The industry may collapse"
Turkish car manufacturer Togg Enters German Market with 5-Star Electric Sedan and SUV to Challenge European EV Brands
Christian Brueckner Released from German Prison after Serving Unrelated Sentence
World’s Longest Direct Flight China Eastern to Launch 29-Hour Shanghai–Buenos Aires Direct Flight via Auckland in December
New OpenAI Study Finds Majority of ChatGPT Use Is Personal, Not Professional
The conservative right spreads westward: a huge achievement for 'Alternative for Germany' in local elections
Pope Leo Warns of Societal Crisis Over Mega-CEO Pay, Citing Tesla’s Proposed Trillion-Dollar Package
Poland Green-Lights NATO Deployment in Response to Major Russian Drone Incursion
U.S. and China Agree on Framework to Shift TikTok to American Ownership
Le Pen Tightens the Pressure on Macron as France Edges Toward Political Breakdown
Czech Republic signs €1.34 billion contract for Leopard 2A8 main battle tanks with delivery from 2028
Penske Media Sues Google Over “AI Overviews,” Claiming It Uses Journalism Without Consent and Destroys Traffic
Indian Student Engineers Propose “Project REBIRTH” to Protect Aircraft from Crashes Using AI, Airbags and Smart Materials
One in Three Europeans Now Uses TikTok, According to the Chinese Tech Giant
Could AI Nursing Robots Help Healthcare Staffing Shortages?
NATO Deploys ‘Eastern Sentry’ After Russian Drones Violate Polish Airspace
The New Life of Novak Djokovic
German police raid AfD lawmaker’s offices in inquiry over Chinese payments
Volkswagen launches aggressive strategy to fend off Chinese challenge in Europe’s EV market
France Erupts in Mass ‘Block Everything’ Protests on New PM’s First Day
Poland Shoots Down Russian Drones in Airspace Violation During Ukraine Attack
Apple Introduces Ultra-Thin iPhone Air, Enhanced 17 Series and New Health-Focused Wearables
Macron Appoints Sébastien Lecornu as Prime Minister Amid Budget Crisis and Political Turmoil
Vatican hosts first Catholic LGBTQ pilgrimage
Apple Unveils iPhone 17 Series, iPhone Air, Apple Watch 11 and More at 'Awe Dropping' Event
France joins Eurozone’s ‘periphery’ as turmoil deepens, say investors
France Faces New Political Crisis, again, as Prime Minister Bayrou Pushed Out
Nayib Bukele Points Out Belgian Hypocrisy as Brussels Considers Sending Army into the Streets
France, at an Impasse, Heads Toward Another Government Collapse
×