This article is from the source 'nytimes' and was first published or seen on . It last changed over 40 days ago and won't be checked again for changes.
You can find the current article at its original source at https://www.nytimes.com/2020/03/03/business/economy/fed-rate-cut.html
The article has changed 8 times. There is an RSS feed of changes available.
| Version 2 | Version 3 |
|---|---|
| Fed Makes Emergency Rate Cut, but Markets Continue Tumbling | Fed Makes Emergency Rate Cut, but Markets Continue Tumbling |
| (3 days later) | |
| In an extraordinary attempt to contain the coronavirus’s economic fallout, the Federal Reserve slashed interest rates on Tuesday as policymakers unanimously approved their biggest one-time cut — and first emergency rate move — since the depths of the 2008 financial crisis. | In an extraordinary attempt to contain the coronavirus’s economic fallout, the Federal Reserve slashed interest rates on Tuesday as policymakers unanimously approved their biggest one-time cut — and first emergency rate move — since the depths of the 2008 financial crisis. |
| Stocks in the United States rallied for about 15 minutes after the rate cut, but worries about the Fed’s impotence in the face of economic risks from the coronavirus quickly fueled a market sell-off. By late Tuesday, stocks were sharply lower and bond yields had plummeted to previously unthinkable lows as investors sought a safe place to park their money. | Stocks in the United States rallied for about 15 minutes after the rate cut, but worries about the Fed’s impotence in the face of economic risks from the coronavirus quickly fueled a market sell-off. By late Tuesday, stocks were sharply lower and bond yields had plummeted to previously unthinkable lows as investors sought a safe place to park their money. |
| The S&P 500 fell about 2.8 percent, undoing some of Monday’s 4.6 percent surge. The yield on 10-year Treasury notes dipped below 1 percent. | The S&P 500 fell about 2.8 percent, undoing some of Monday’s 4.6 percent surge. The yield on 10-year Treasury notes dipped below 1 percent. |
| Interest rates are now set in a 1 percent to 1.25 percent range, and Jerome H. Powell, the Fed chair, signaled that further moves were possible. “The virus and the measures that are being taken to contain it will surely weigh on economic activity, both here and abroad, for some time,” Mr. Powell said at a news conference, adding the Fed was “prepared to use our tools and act appropriately, depending on the flow of events.” | Interest rates are now set in a 1 percent to 1.25 percent range, and Jerome H. Powell, the Fed chair, signaled that further moves were possible. “The virus and the measures that are being taken to contain it will surely weigh on economic activity, both here and abroad, for some time,” Mr. Powell said at a news conference, adding the Fed was “prepared to use our tools and act appropriately, depending on the flow of events.” |
| But the market’s negative reaction may reflect a recognition that cutting interest rates or engaging in other types of fiscal stimulus will do little to contain the virus that has sickened more than 90,000 people, with major outbreaks taking hold in South Korea, Japan, Iran and Italy. | But the market’s negative reaction may reflect a recognition that cutting interest rates or engaging in other types of fiscal stimulus will do little to contain the virus that has sickened more than 90,000 people, with major outbreaks taking hold in South Korea, Japan, Iran and Italy. |
| More than 100 people are infected in the United States, with new cases emerging in some big metro areas, including Fulton County, Ga.; Cook County, Ill.; San Mateo County, Calif.; Westchester County, N.Y.; and Maricopa County, Ariz. Washington State reported another fatality from the coronavirus on Tuesday, raising the U.S. death toll to nine. | More than 100 people are infected in the United States, with new cases emerging in some big metro areas, including Fulton County, Ga.; Cook County, Ill.; San Mateo County, Calif.; Westchester County, N.Y.; and Maricopa County, Ariz. Washington State reported another fatality from the coronavirus on Tuesday, raising the U.S. death toll to nine. |
| While cutting rates can bolster confidence and help to keep borrowing cheap, it cannot prevent disease from spreading or help companies deal with delayed orders or sick workers. | While cutting rates can bolster confidence and help to keep borrowing cheap, it cannot prevent disease from spreading or help companies deal with delayed orders or sick workers. |
| “We do recognize that a rate cut cannot reduce the rate of infection, it won’t fix a broken supply chain,” Mr. Powell said. “We get that — we don’t think we have all the answers.” | “We do recognize that a rate cut cannot reduce the rate of infection, it won’t fix a broken supply chain,” Mr. Powell said. “We get that — we don’t think we have all the answers.” |
| Get an informed guide to the global outbreak with our daily coronavirus | Get an informed guide to the global outbreak with our daily coronavirus |
| newsletter. | newsletter. |
| If anything, containing the longer-term economic fallout may necessitate preventive actions that will weigh on near-term economic growth, like restricting air travel, closing movie theaters, shuttering factories and quarantining workers. China, the initial source of the outbreak, has engaged in those types of restrictions, hurting its economy temporarily but enabling it to slow the virus’s spread. | |
| Anthony S. Fauci, the director of the Centers for Disease Control and Prevention, called China’s measures “rather draconian” on Tuesday at a news conference but acknowledged that they had slowed the number of virus cases. “They have taken social distancing to its farthest extreme,” he said. | Anthony S. Fauci, the director of the Centers for Disease Control and Prevention, called China’s measures “rather draconian” on Tuesday at a news conference but acknowledged that they had slowed the number of virus cases. “They have taken social distancing to its farthest extreme,” he said. |
| Many economists predict that the United States could face a significant slowdown — or even a recession — if efforts to contain an outbreak here fail. | Many economists predict that the United States could face a significant slowdown — or even a recession — if efforts to contain an outbreak here fail. |
| Neil Dutta, the head of economic research at Renaissance Macro Research, wrote in a note after the announcement that “the Fed’s tools are imperfect and not adequate to deal with a public health crisis.” He added that “the panic needs to come from the opposite of 17th Street” — which is where the White House is. | Neil Dutta, the head of economic research at Renaissance Macro Research, wrote in a note after the announcement that “the Fed’s tools are imperfect and not adequate to deal with a public health crisis.” He added that “the panic needs to come from the opposite of 17th Street” — which is where the White House is. |
| President Trump said on Tuesday that he might further tighten limits on international travel in hopes of blocking the arrival of more visitors infected by the coronavirus, but he ruled out for now any restrictions on travel within the United States. | President Trump said on Tuesday that he might further tighten limits on international travel in hopes of blocking the arrival of more visitors infected by the coronavirus, but he ruled out for now any restrictions on travel within the United States. |
| “We’re not looking at that at all,” Mr. Trump said. “But we’re looking at other countries and we’re being very stringent,” he told reporters before boarding his Marine One helicopter to fly to the National Institutes of Health for a visit. | “We’re not looking at that at all,” Mr. Trump said. “But we’re looking at other countries and we’re being very stringent,” he told reporters before boarding his Marine One helicopter to fly to the National Institutes of Health for a visit. |
| Vice President Mike Pence said the C.D.C. would lift all restrictions on testing for the coronavirus and would release new guidelines to fast-track testing for people who fear they have it, even if they are displaying only mild symptoms. But Mr. Pence said the federal government did not intend to dictate school or office closings, saying that “these decisions are best made at the state and local level.” | Vice President Mike Pence said the C.D.C. would lift all restrictions on testing for the coronavirus and would release new guidelines to fast-track testing for people who fear they have it, even if they are displaying only mild symptoms. But Mr. Pence said the federal government did not intend to dictate school or office closings, saying that “these decisions are best made at the state and local level.” |
| The World Bank, in an attempt to help countries deal with the health and economic effects of the outbreak, said it would make $12 billion worth of financing available. David Malpass, the World Bank president, said the money would be used to strengthen health systems, improve access to health services and enhance disease surveillance, particularly in poorer countries. | The World Bank, in an attempt to help countries deal with the health and economic effects of the outbreak, said it would make $12 billion worth of financing available. David Malpass, the World Bank president, said the money would be used to strengthen health systems, improve access to health services and enhance disease surveillance, particularly in poorer countries. |
| Investors still expect the Fed to do more, and are anticipating another quarter-point cut at the central bank’s meeting on March 18, potentially followed by another move in April. But the central bank is running low on room to cut rates to avert a significant downturn if things worsen, which could be fueling market jitters. Going into the last recession, from 2007 to 2009, the Fed cut rates from above 5 percent. Now it will have just four quarter-point moves left at its disposal. | Investors still expect the Fed to do more, and are anticipating another quarter-point cut at the central bank’s meeting on March 18, potentially followed by another move in April. But the central bank is running low on room to cut rates to avert a significant downturn if things worsen, which could be fueling market jitters. Going into the last recession, from 2007 to 2009, the Fed cut rates from above 5 percent. Now it will have just four quarter-point moves left at its disposal. |
| “Maybe there’s a stronger sense that we’re closer to being out of ammo. This is a real shock, and what is a rate cut going to do?” said Julia Coronado, a founder of the research firm MacroPolicy Perspectives. “We don’t know where it is, who has it, or how far it is going to spread.” | “Maybe there’s a stronger sense that we’re closer to being out of ammo. This is a real shock, and what is a rate cut going to do?” said Julia Coronado, a founder of the research firm MacroPolicy Perspectives. “We don’t know where it is, who has it, or how far it is going to spread.” |
| Other economists speculated that markets might have seen the action as a signal that economic fundamentals are crumbling. | Other economists speculated that markets might have seen the action as a signal that economic fundamentals are crumbling. |
| “This could be seen as a panic move,” Ryan Sweet at Moody’s Analytics said in a note, calling the Fed’s decision to move in between scheduled meetings “risky.” | “This could be seen as a panic move,” Ryan Sweet at Moody’s Analytics said in a note, calling the Fed’s decision to move in between scheduled meetings “risky.” |
| Emergency rate cuts are not without precedent. The Fed’s move on Tuesday echoed a 50-basis-point rate cut it made in October 2008 as markets melted down after the collapse of Lehman Brothers, and another it made earlier that year. | Emergency rate cuts are not without precedent. The Fed’s move on Tuesday echoed a 50-basis-point rate cut it made in October 2008 as markets melted down after the collapse of Lehman Brothers, and another it made earlier that year. |
| But this time, the central bank moved pre-emptively — trying to get ahead of an economic problem, rather than waiting until damage was more fully realized. Unemployment in the United States remains at a 50-year low, and most economic indicators do not yet reflect a virus fallout. | But this time, the central bank moved pre-emptively — trying to get ahead of an economic problem, rather than waiting until damage was more fully realized. Unemployment in the United States remains at a 50-year low, and most economic indicators do not yet reflect a virus fallout. |
| As recently as late January, the Fed signaled it expected to hold rates steady, with no plans to raise or lower borrowing costs after ushering in three cuts in 2019. But officials at its last policy meeting were already growing concerned about the virus’s potential effects, and in February, Mr. Powell warned that China’s struggles with the virus could pose broader economic risks. | As recently as late January, the Fed signaled it expected to hold rates steady, with no plans to raise or lower borrowing costs after ushering in three cuts in 2019. But officials at its last policy meeting were already growing concerned about the virus’s potential effects, and in February, Mr. Powell warned that China’s struggles with the virus could pose broader economic risks. |
| The Fed’s move came after central banks in Australia and Malaysia lowered borrowing costs early Tuesday and after a joint statement from the leaders of the Group of 7 — which includes Britain, Canada, France, Germany, Italy, Japan and the United States — pledged global coordination and cooperation in containing fallout from the coronavirus. | The Fed’s move came after central banks in Australia and Malaysia lowered borrowing costs early Tuesday and after a joint statement from the leaders of the Group of 7 — which includes Britain, Canada, France, Germany, Italy, Japan and the United States — pledged global coordination and cooperation in containing fallout from the coronavirus. |
| Mr. Trump, who has played down the economic effect of the virus, has been urging the Fed to cut rates to better compete with other countries that have low or negative borrowing costs. The Fed’s half-point cut did little to assuage his complaints. | Mr. Trump, who has played down the economic effect of the virus, has been urging the Fed to cut rates to better compete with other countries that have low or negative borrowing costs. The Fed’s half-point cut did little to assuage his complaints. |
| “Finally. Do it more. Do it a little bit more,” the president said of the rate cut. “We’re paying more than other countries; we should be paying less than everybody else. We have the dollar. We have the strength. We have the greatest country on Earth.” | “Finally. Do it more. Do it a little bit more,” the president said of the rate cut. “We’re paying more than other countries; we should be paying less than everybody else. We have the dollar. We have the strength. We have the greatest country on Earth.” |
| Asked if political pressure fueled the cut, Mr. Powell said that in making decisions, he and his colleagues were “never going to consider any political considerations whatsoever.” | Asked if political pressure fueled the cut, Mr. Powell said that in making decisions, he and his colleagues were “never going to consider any political considerations whatsoever.” |
| For now, the White House seems unconvinced other measures will be necessary. Treasury Secretary Steven Mnuchin, speaking Tuesday before House lawmakers, insisted that the current volatility was not comparable to the 2008 financial crisis and that the disruptions to travel and supply chains would abate. However, he made clear that the Trump administration was preparing for the economy to take a hit this year. | For now, the White House seems unconvinced other measures will be necessary. Treasury Secretary Steven Mnuchin, speaking Tuesday before House lawmakers, insisted that the current volatility was not comparable to the 2008 financial crisis and that the disruptions to travel and supply chains would abate. However, he made clear that the Trump administration was preparing for the economy to take a hit this year. |
| “I would say this is not different than any severe situation,” Mr. Mnuchin said. “This is going to have an impact on the short term in the economy.” | “I would say this is not different than any severe situation,” Mr. Mnuchin said. “This is going to have an impact on the short term in the economy.” |
| The Treasury Department has created a task force to develop stimulus proposals, should additional efforts be needed, he said, adding that he was looking at ways to help businesses if they needed support. | The Treasury Department has created a task force to develop stimulus proposals, should additional efforts be needed, he said, adding that he was looking at ways to help businesses if they needed support. |
| Lawmakers were also working on an emergency spending bill worth $7 billion to $8 billion. The package, which has been quickly negotiated over the past few days, is expected to be significantly larger than what the White House initially proposed eight days ago: $1.25 billion in new funds, paired with a transfer of existing funds from other health programs. | Lawmakers were also working on an emergency spending bill worth $7 billion to $8 billion. The package, which has been quickly negotiated over the past few days, is expected to be significantly larger than what the White House initially proposed eight days ago: $1.25 billion in new funds, paired with a transfer of existing funds from other health programs. |
| Mr. Trump continued to suggest that Democrats pass a temporary payroll tax cut, but that seemed unlikely to gain traction. Representative Richard E. Neal, the chairman of the House Ways and Means Committee, told Mr. Mnuchin that any stimulus package should be centered around infrastructure investment rather than additional tax cuts. Mr. Mnuchin said that infrastructure would be central to any such package. | Mr. Trump continued to suggest that Democrats pass a temporary payroll tax cut, but that seemed unlikely to gain traction. Representative Richard E. Neal, the chairman of the House Ways and Means Committee, told Mr. Mnuchin that any stimulus package should be centered around infrastructure investment rather than additional tax cuts. Mr. Mnuchin said that infrastructure would be central to any such package. |
| Mr. Powell did not specify whether the economy needed Congress and Mr. Trump to provide some form of fiscal stimulus like tax cuts or spending increases. He also would not say what economic data points might cause the Fed — or other central banks — to take additional steps to protect the economy. | Mr. Powell did not specify whether the economy needed Congress and Mr. Trump to provide some form of fiscal stimulus like tax cuts or spending increases. He also would not say what economic data points might cause the Fed — or other central banks — to take additional steps to protect the economy. |
| “Central banks are doing what makes sense in their particular institutional contexts,” he said. “But we’re all talking to each other on an ongoing basis.” | “Central banks are doing what makes sense in their particular institutional contexts,” he said. “But we’re all talking to each other on an ongoing basis.” |
| Charles L. Evans, the president of the Federal Reserve Bank of Chicago, said on Tuesday night that the onus was on federal authorities, not the Fed. | Charles L. Evans, the president of the Federal Reserve Bank of Chicago, said on Tuesday night that the onus was on federal authorities, not the Fed. |
| “You’ve got to recognize that the key response to the virus has to come from the federal authorities, and the health community, to make sure that we all stay safe,” he said, adding that he expected the economy to bounce back after a short-term pullback in demand. “This is the type of event that you would expect to be short-lived.” | “You’ve got to recognize that the key response to the virus has to come from the federal authorities, and the health community, to make sure that we all stay safe,” he said, adding that he expected the economy to bounce back after a short-term pullback in demand. “This is the type of event that you would expect to be short-lived.” |
| Katie Rogers and Alan Rappeport contributed reporting. | Katie Rogers and Alan Rappeport contributed reporting. |