The Federal Reserve voted unanimously yesterday to lower interest rates a quarter of a percent to 1.5%, the biggest interest rate cut since 2008. Federal Reserve Chairman Jerome Powell announced that “Earlier today, the Federal Open Market Committee announced a 1/2 percentage point reduction in the target range for the federal funds rate, bringing the range to 1 to 1-1/4 percent. My colleagues and I took this action to help the U.S. economy keep strong in the face of new risks to the economic outlook”. He went on to say, “The spread of the coronavirus has brought new challenges and risks. The virus has afflicted many communities around the world, and our thoughts and prayers go out to those who have been harmed. The outbreak has also disrupted economic activity in many countries and has prompted significant movements in financial markets”.
The Federal Reserve also issued a statement regarding the cut, “The fundamentals of the U.S. economy remain strong. However, the coronavirus poses evolving risks to economic activity. In light of these risks and in support of achieving its maximum employment and price stability goals, the Federal Open Market Committee decided today to lower the target range for the federal funds rate by 1/2 percentage point, to 1 to 1‑1/4 percent. The Committee is closely monitoring developments and their implications for the economic outlook and will use its tools and act as appropriate to support the economy”.
When asked by Ylan Mui from CNBC if the rate cut was due to any political pressure Mr. Powell said, “We are never going to consider any political considerations whatsoever. We will not do that, and it’s very important that the public understand that”.
In response to the rate cut, President Trump said,”The Federal Reserve is cutting but must further ease and, most importantly, come into line with other countries/competitors. 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”!
The market responded by closing down yesterday(The Dow closed down 786 points(-2.94%), The Nasdaq closed down 268 points(-2.99%) and the S&P 500 closed down 87 points(-2.81%)) and up today(The Dow closed up 1173 points(4.53%), The Nasdaq closed up 334 points(3.85%) and the S&P 500 closed up 127 points(4.22%)).
