US Federal Reserve cuts interest rates over coronavirus worries

4 Mar 20

Fears of the coronavirus outbreak hitting the economy have caused the US Federal Reserve to slash interest rates in the biggest single cut since the last financial crisis.

 

The central bank lowered its benchmark rate, at which banks lend their reserves to one another, by 0.5 percentage points to a range of 1% to 1.25%.

Coronavirus poses “evolving risks to the economy”, the Federal Reserve said in a statement, adding that it was closely monitoring the outbreak and its potential to impact the economy.

Chair Jerome Powell told reporters that he believed the cut would provide a “meaningful boost” in the face of the virus.

The rates cut follows a warning from the OECD, which said earlier this week that a worst-case scenario outbreak could halve global growth in GDP this year and push some countries into recession.

The IMF predicted a baseline scenario, with coronavirus being contained and supply chains returning to normal soon, would knock 0.1 percentage points off global growth, but managing director Kristalina Georgieva admitted the uncertainties “are too great” to make predictions with certainty.

In a conference call this afternoon, EU finance ministers discussed the virus’s impact on financial markets and the economy.

“Given the potential impact on growth including the disruption of supply chains, we will coordinate our responses and stand ready to use all appropriate policy tools to achieve strong, sustainable growth and to safeguard against further materialization of downside risks,” said Portugal’s Mário Centeno after the call.

“We are prepared to take further policy action. This includes fiscal measures - where appropriate, as they may be needed to support growth.”

In Italy, which has had the most serious outbreak among European countries, the government has already committed to implement a “large and meaningful package” of interventions,  including extending a fund to guarantee SMEs retain liquidity, providing support for Italian exports and expanding unemployment benefits.

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