Fed cuts rates to help calm market fears

Head of US central bank says emergency move will provide 'meaningful support to economy'

The US Federal Reserve took emergency action on Tuesday, cutting interest rates by half a percentage point－the largest cut since the 2008 financial crisis－in a move to help calm financial markets and stabilize the economy amid fears of the spreading coronavirus.

"We saw a risk to the outlook of the economy and we chose to act," Jerome Powell, chairman of the Federal Reserve, said at a news conference shortly after announcing the cut. "We don't think we have all the answers, but we do believe our action will provide meaningful support to the economy."

The Fed slashed rates to 1 percent to 1.25 percent, from 1.50 to 1.75 percent. But this didn't help the stock market, with US stock indexes closing down about 3 percent and safe-haven gold rising 3 percent.

In a research note, Standard & Poor's Global said the Fed's action on Tuesday will "help cushion the blow" from the coronavirus.

"Though we were anticipating a move at some point, we think the Fed did well by acting decisively and moving soon," S&P said. "Given that monetary policy works with a lag, cutting now will help speed up recovery when the coronavirus concerns have passed. If the rout in the financial market continues, more rate cuts are likely to follow."

Manish Shah, publisher of Miami-based 123 Jump Network, an internet provider of stock news, said the Federal Reserve has "limited powers" to deal with a global crisis, but can lessen friction at home.

"Markets were correct in anticipating the cut, and the Fed delivered," Shah told China Daily. "Now investors are worried how company earnings will be impacted. The market is still waiting for the next shoe to drop as US cases of coronavirus start piling up. For better or worse, uncertainties linked to the virus will be with us, and the market is slowly coming to that realization. Hence, the volatility."

Finance ministers from the G7 group of nations said in a joint statement that they will use "all appropriate policy tools" including "fiscal measures" to tackle the economic impact of the coronavirus.

The statement followed warnings the economic impact could tip countries into recession.

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

Investors and economists said there's not much that monetary policy can do to save the global economy, especially when some major central banks－such as the European Central Bank and the Bank of Japan－have already cut interest rates into negative territory, according to CNBC.

The World Bank has approved $12 billion in emergency financing to help poor nations with the health costs and economic impact of the outbreak, which has spread to at least 74 countries across the globe, the organization said.

"We are working to provide a fast, flexible response based on developing country needs in dealing with the spread of COVID-19," World Bank Group President David Malpass said in a statement on Tuesday.

The World Health Organization warned on Tuesday of a global shortage and price gouging for protective equipment to fight the coronavirus and asked companies and governments to increase production by 40 percent as the death toll from the respiratory illness mounted. It said the mortality rate for COVID-19 is 3.4 percent globally, higher than previous estimates of about 2 percent.