As expected, as part of a coordinated global stimulus effort, the Fed cut interest rates this morning by 50 basis points. While the Fed was the first to take action, the European Central Bank, the Bank of England and the Bank of Canada are all likely to follow suit after each vowed to combat the economic threat with monetary tools.
While this might not prevent the economy slowing due to the coronavirus, it will ease the cost of capital for businesses if demand falters or supply chains lengthen.
- It was the first time the Fed lowered rates inter-meeting and the first time it has cut by more than 25 basis points since 2008.
- While the move was clearly predicated on the increasing economic risk posed by the virus, the Fed subsequently stated that the “fundamentals of the U.S. economy remain strong.”
- Many believe the 50 basis point cut will soon be followed by further stimulus from both the Fed (e.g., bond-buying and further cuts) as well as the government (e.g., a payroll tax holiday).
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