The Federal Reserve issued an emergency reduction in its interest rate target of half a percentage point in response to the coronavirus outbreak.
“The coronavirus poses evolving risks to economic activity,” the central bank said in a statement.
It also said “fundamentals of the U.S. economy remain strong” despite the volatility in markets attributable to uncertainty about the effects of the spread of the virus.
With Tuesday’s unanimous vote, the Fed’s short-term interest rate target is now between 1% and 1.25%.
“What changed really was in the last couple of weeks we’ve seen a broader spread of the virus,” Chairman Jerome Powell said at a hastily convened press conference. “We’ve seen it begin to spread a bit in the United States… So we saw a risk to the outlook of the economy and we chose to act.”
Powell said the virus had started to affect the tourism and travel industries as well as industries that rely on global supply chains.
President Trump had, over the past week, called on the Fed to pursue easier money as a response to coronavirus fears. On Tuesday, though, he said that the Fed’s surprise rate cut was insufficient.
“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!” he wrote on Twitter.
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!
— Donald J. Trump (@realDonaldTrump) March 3, 2020
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Powell told reporters at a hastily convened press conference Tuesday that Trump did not influence their support of the rate cut and that he would not influence them later if they decide to cut the rate further.
“We’re never going to consider any political consideration whatsoever. We will not do that, and it’s very important that the public understand,” Powell said.
Treasury Secretary Steven Mnuchin, testifying on Capitol Hill, praised the Fed for the rate cut.
“This is going to have an impact in the short term on the economy. It’s very different than the financial crisis. The good news here is there will be an end in sight,” he said.
Powell did not comment on whether Congress should pass legislation cutting taxes or raising spending to counter the effects of the virus in the U.S., as some favor — Elizabeth Warren, for instance, has called for a $400 billion stimulus package.
“We have a full plate with monetary policy; not our role to give advice to fiscal policy,” Powell said.
The U.S. markets responded positively to the Fed’s actions and moved into positive territory after opening flat, before later giving up the gains.
