In an emergency move to battle the coronavirus outbreak, the U.S. Federal Reserve has cut interest rates by 0.5%. The decision, by the Federal Open Market Committee, was unanimous. It’s the largest emergency cut in U.S. interest rates since the financial crisis.
In a statement, the FOMC said: ‘The fundamentals of the U.S. economy remain strong. However, the coronavirus poses evolving risks to economic activity. In light of these risks and in support of achieving its maximum employment and price stability goals, the Federal Open Market Committee decided today to lower the target range for the federal funds rate by 1/2 percentage point, to 1 to 1‑1/4 percent. The Committee is closely monitoring developments and their implications for the economic outlook and will use its tools and act as appropriate to support the economy’.
The U.S. Treasury Secretary Steven T. Mnuchin and Federal Reserve Chair Jerome H. Powell have led a call with the G7 Finance Ministers and Central Bank Governors to discuss the coronavirus disease. At the conclusion of their meeting, they issued the following joint statement: “We, G7 Finance Ministers and Central Bank Governors, are closely monitoring the spread of the coronavirus disease 2019 (COVID-19) and its impact on markets and economic conditions.
“Given the potential impacts of COVID-19 on global growth, we reaffirm our commitment to use all appropriate policy tools to achieve strong, sustainable growth and safeguard against downside risks. Alongside strengthening efforts to expand health services, G7 finance ministers are ready to take actions, including fiscal measures where appropriate, to aid in the response to the virus and support the economy during this phase. G7 central banks will continue to fulfill their mandates, thus supporting price stability and economic growth while maintaining the resilience of the financial system.
“We welcome that the International Monetary Fund, the World Bank, and other international financial institutions stand ready to help member countries address the human tragedy and economic challenge posed by COVID-19 through the use of their available instruments to the fullest extent possible. G7 Finance Ministers and Central Bank Governors stand ready to cooperate further on timely and effective measures.”
Meanwhile, in the UK, the Bank of England said it will take all necessary steps to support the UK economy and financial system.
In a statement it said: ‘We are monitoring the situation closely across all our functions and ensuring all necessary contingency plans are in place. The Monetary Policy Committee (MPC) is assessing the economic impacts and considering the policy implications of various possible scenarios, including the extent to which supply disruptions have aggregate demand consequences via cash flow, cost and availability of finance, as well as confidence effects’.