Federal Reserve Cuts Interest Rates to Offset Coronavirus

- March 3rd, 2020

The US Federal Reserve cut the benchmark interest rate by a half point on Tuesday in response to coronavirus headwinds.

The US Federal Reserve has opted to pull levers in a bid to support the American economy as the COVID-19 coronavirus puts the brakes on economic activity globally.

The Fed announced on Tuesday (March 3) that it has cut the benchmark interest rate by half a percentage point, down to 1 to 1.25 percent.

In a press conference, Fed Chair Jerome Powell explained that, since the last Federal Open Market Committee meeting, “prospects for continued economic growth remained favorable … since then, the spread of the coronavirus has brought new challenges and risks.”

 

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Powell said, “The virus and the measures being taken to contain it will surely weigh on economic activity both here and abroad for some time,” and noted that there have already been major disruptions to industries such as tourism and travel, and those that rely on global supply chains.

He added that the Fed will continue to monitor the situation, but “beyond that, effects are unclear as the situation is fluid.”

In an interview with the Investing News Network (INN) at the Prospectors and Developers Association of Canada (PDAC) convention, Frank Holmes of US Global Investors (NASDAQ:GROW) said that the Fed action is not going to help markets in the long run; he also talked about the longevity of the COVID-19 situation.

“The coronavirus is not over,” he said, explaining that while it is likely to be eventually dealt with, it will take longer due to open borders. “You have to have a certain amount of control of your borders.”

John Kaiser of Kaiser Research, who was also speaking with INN at PDAC, similarly believes the rate cut is unlikely to do anything to help the situation, and instead suggested that the Trump administration could do more to combat the downturn by fulfilling campaign promises to build America’s infrastructure.

Immediately upon the release of the cut at 10:00 a.m. EST, the Dow Jones Industrial Average (INDEXDJX:.DJI) saw a spike, but by the end of the day it was down by 496.08 points, or 1.86 percent, to 26,207.24 points.

In Canada, the S&P/TSX Composite Index (INDEXTSI:OSPTX) responded with a similar spike, but managed to hold on to more of its value through the day, falling by only 27.97 points to 16,525.29.

Even the popular safe haven gold saw a significant dip in value the Friday (February 28) prior to PDAC, with the yellow metal falling below US$1,600 per ounce as investors sought to get their hands on cold hard cash amid the uncertainty.

The coronavirus scare has been gripping global markets for weeks now, with commodities across the board taking a hammering due not just to fear and sentiment, but efforts to contain the spread of the disease.

PDAC in Toronto went ahead, with organizers saying they are continuing to monitor the situation, but many other conferences around the world have been kiboshed by fear surrounding the situation — including the Geneva Motor Show.

PDAC was not immune from being affected, however, with multiple conspicuously empty booths across all days of the conference.

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Securities Disclosure: I, Scott Tibballs, hold no direct investment interest in any company mentioned in this article.

Editorial Disclosure: The Investing News Network does not guarantee the accuracy or thoroughness of the information reported in the interviews it conducts. The opinions expressed in these interviews do not reflect the opinions of the Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.

 

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