Amid mounting concern that the coronavirus could slow down economic growth, the US Federal Reserve cut its key interest rate by 0.50% percentage points to a range of 1% to 1.25%.
- The cut represents a rare unscheduled move by the Fed
- The OECD believes the virus could reduce global economic growth
- The central banks of Australia and Malaysia also cut their key rates
Amid mounting concern that the coronavirus could slow down economic growth, the US Federal Reserve (Fed) cut its key interest rate by 0.50% percentage points to a range of 1% to 1.25%. The Fed’s decision was unexpected: the Federal Open Market Committee (FOMC) was not slated to meet until 17-18 March, so the cut represents a rare unscheduled move. On the same day, the Reserve Bank of Australia also reduced its key interest rate, cutting it from 0.75% to 0.50%, and the central bank of Malaysia cut its rate by 25 basis points to 2.5%.
“Policymakers believe the coronavirus “poses evolving risks to economic activity”
According to the Fed, the economic fundamentals of the US remain strong; however, policymakers believe the coronavirus “poses evolving risks to economic activity”. The Fed went on to reiterate that it would “use its tools and act as appropriate to support the economy”. In response to the reduction, President Donald Trump – a vocal critic of the Fed – tweeted: “The Federal Reserve is cutting, but must further ease… More easing and cutting!”
The Organization for Economic Cooperation & Development (OECD) believes the virus could reduce global economic growth this year from “an already weak” 2.9% to 2.4%, but warned that a “longer-lasting and more intensive” outbreak could undermine economic prospects more severely. Elsewhere, a statement following a telephone meeting of G7 finance ministers reaffirmed their intention to harness “all appropriate policy tools to achieve strong sustainable growth and safeguard against downside risks”.
