Coronavirus pushes the U.S Federal Reserve for the 1st emergency rate cut in over a decade

By: Michael Harris
Michael Harris
Specialising in economics by academia, with a passion for financial trading, Michael Harris has been a regular contributor to… read more.
on Mar 3, 2020
Updated: Mar 11, 2020
  • Coronavirus pushes the U.S Federal Reserve for the 1st emergency rate cut in over a decade.
  • The U.S Federal Reserve cuts rates by 0.50% point on Tuesday to support economic growth.
  • Eur/Usd climbs above 1.12 level following the U.S Fed's announcement of a rate cut on Tuesday.

The transformation of the Coronavirus outbreak in Wuhan, China into a pandemic was recently expected to push several countries from across the globe to opt for monetary policy leniency to support the economy. The Reserve Bank of Australia (RBA) cut rates to 0.50% on Tuesday, following which, experts anticipated the United States Federal Reserve to follow it in its footsteps in its next policy meeting.

In a recent development, however, the U.S Fed refrained from waiting for the next policy meeting and opted for an emergency rate cut on Tuesday in an attempt to protect the world’s largest economy against the rising concerns of Coronavirus. Chairman Jerome Powell also commented on Tuesday that the economic impact of the virus outbreak is not likely to fade away anytime soon.

U.S Federal Reserve Cut Rates By 0.50% Point

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In its announcement on Tuesday, the U.S Federal Reserve declared to have decided in favor of cutting rates further by a 0.50% point. Powell’s target range, following the announcement, is now 1.00% – 1.25%.

The unanimous decision from policymakers that implemented an emergency rate cut was the first of its kind in the U.S since the financial crisis of 2008. The decision, as per the analysts, gives a glimpse of how grave the impact of Coronavirus be on the global economy.

The initial response of the financial markets was not too appreciative following the U.S Fed’s announcement. Wall Street continued to decline on Tuesday while U.S treasuries yields also took time to pick up.

With a boost to household confidence and business investment, Powell expects this leniency in financial conditions to provide the required support for economic growth. Nonetheless, he added, the situation remains uncertain in the upcoming months.

Response In The Forex Market

The virus has so far infected over 90,000 people from across the globe (77 countries) with the death count increasing with each passing day. The health emergency is massively hitting the global economy with severe disruptions in business operations, cancelation of meetings, gatherings, and events, and a lack of confidence in the stock market.

The forex market responded quite aggressively to Fed’s decision on Tuesday. As the U.S dollar index took a toll following the announcement of the rate cut, the EUR/USD currency pair was seen climbing from 1.1095 to a daily high of 1.1212. At the time of writing, the currency pair is exchanging hands at 1.1180.

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