Yesterday, the Federal Reserve took the decision to make an emergency interest rate cut to combat coronavirus risks, the first since the financial crisis of 2008. In a swift, unscheduled response, rates were cut by half a percentage point.
After cutting rates three times in 2019, this cut would not have been expected before the coronavirus proved to be a concern. Whilst acknowledging that the US economy remains strong, the Fed said that the coronavirus poses “evolving risks to economic activity.” President Trump tweeted shortly afterwards calling for even further “easing and cutting”.
The dollar weakened as a result, and there is speculation that rates could be cut again at the Federal Reserve’s scheduled meeting in mid-March. Despite this, at 1.25%, the US’ interest rate is still higher than both the EU’s and the UK’s.
In a press conference yesterday afternoon, Federal Reserve Chair, Jerome Powell, reiterated the point that the US economy remains fundamentally strong and growth prospects remain favourable. However, he added that the coronavirus means that the risks to the economic outlook have “changed materially”.
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