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The Economic Impact Of Coronavirus Has Forced US Central Bank To Cut Interest Rates

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The US central bank has slashed interest rates in response to mounting concerns about the economic impact of the coronavirus.

The Federal Reserve lowered its benchmark rate by 50 basis points to a range of 1% to 1.25%.

The emergency move comes after the G7 group of finance ministers pledged action earlier on Tuesday. It follows warnings that slowdown from the outbreak could tip countries into recession.

Federal Reserve Chair Jerome Powell said the US economy remains strong but it is difficult to predict the “magnitude and persistence” of the effects of the spreading virus.

at a press conference in Washington he said “The virus and the measures that are being taken to contain it will surely weigh on economic activity for some time, both here and abroad,” “We don’t think we have all the answers. But we do believe that our action will provide a meaningful boost to the economy.”

The last time the bank made an interest rate cut at an emergency meeting was during the global financial crisis of 2008.

The unanimous decision is a “dramatic turnaround from last week”, when many Fed officials appeared confident that rates, already low by historical standards, would not need to be cut further, said Paul Ashworth, chief US economist at Capital Economics said.

“With financial markets in turmoil and evidence growing that the coronavirus is developing into a pandemic, the Fed’s change of heart is entirely understandable,” he said.

Mr Powell said the bank believed the rate cut would help strengthen consumer and business confidence, and keep money flowing.

Many analysts in recent days had said they expected the Fed to act. However, Peter Tuchman, a stock trader at Quattro Securities, said he did not think financial markets would necessarily welcome the move. “They’re doing it to

Earlier on Tuesday, both Australia and Malaysia cut interest rates as a result of the outbreak, while finance ministers from the G7 group of nations pledged to use “all appropriate policy tools” to tackle the economic impact of coronavirus.

The group of major economies said in a joint statement they were monitoring the outbreak and ready to deploy “fiscal measures”.

On Monday, the Organisation for Economic Cooperation and Development (OECD) warned the global economy could grow at its slowest rate since 2009 this year because of the virus.

The influential think tank forecast growth of just 2.4% in 2020, down from 2.9% in November, but it said a longer “more intensive” outbreak could halve growth and tip many countries into recession.

Growth concerns contributed to sharp falls on major stock markets last week, but shares had started to rebound on Monday amid signs that governments and major central banks would work together to tackle the economic hit of coronavirus.

US President Donald Trump has repeatedly called on Mr Powell to lower interest rates, ignoring tradition that presidents stay quiet on bank policy to preserve the bank’s independence.

Following the bank’s announcement, he said it should cut further. “It is finally time for the Federal Reserve to LEAD. More easing and cutting!” he Tweeted.

Mr Powell denied that the bank had been influenced by political considerations. But he kept the door open to further cuts. (BBC)

 

 

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