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Business News/ News / World/  Amid spreading virus, US Fed cuts key interest rate by 50 bps to 1-1.25% range

Amid spreading virus, US Fed cuts key interest rate by 50 bps to 1-1.25% range

Emergency rate cut due to 'evolving risks' from coronavirus, says US Fed
  • Fed says fundamentals remain strong but coronavirus poses evolving risks to economic activity
  • US Fed says 'closely monitoring' virus impact on economic outlook (Photo: Reuters)Premium
    US Fed says 'closely monitoring' virus impact on economic outlook (Photo: Reuters)

    The U.S. Federal Reserve cut interest rates on Tuesday in an emergency move designed to shield the world's largest economy from the impact of the coronavirus.

    It was the Fed's first emergency rate cut since 2008 at the height of the financial crisis, underscoring how grave the central bank views the fast-evolving situation.

    In a statement, the central bank said it was cutting rates by a half percentage point to a target range of 1.00% to 1.25%.

    "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," the Fed said a statement.

    The decision was unanimous among policymakers.

    The Fed's decision to cut interest rates before its next scheduled policy meeting on March 17-18 reflects the urgency with which the Fed feels it needs to act in order to prevent the possibility of a global recession.

    U.S. stocks initially surged on the move, which had increasingly been expected as it became evident the COVID-19 virus would not be contained to its epicenter in China. The outbreak has upended global supply chains and torpedoed global stock prices on fears it could cause a recession.

    Equities, however, reversed many of those gains within minutes of the unscheduled announcement by the Federal Open Market Committee, the central bank's policy arm. U.S. Treasury debt prices surged, sending bond yields lower.

    Federal Reserve Chair Jerome Powell will hold a press conference at 11 a.m. (1600 GMT) to provide additional details.

    Powell had earlier on Tuesday taken part in a conference call with the top finance authorities from the world's seven largest economies, which concluded with a statement that they would take all appropriate measures to support the economy.

    "I'm a little surprised. I didn't expect that at 10 o'clock today, I thought you'd see something coordinated among central banks," said Justin Lederer, interest rate strategist at Cantor Fitzgerald in New York.

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    This story has been published from a wire agency feed without modifications to the text. Only the headline has been changed.

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    Updated: 03 Mar 2020, 08:36 PM IST
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