Fundamental Comment

Fed surprises markets by 50bp rate cut to combat corona impact

Fed surprises markets by 50bp rate cut to combat corona impact

After a scheduled interest rate cut by the Reserve Bank of Australia earlier today, the Federal Reserve surprised markets by a 50-basis point interest rate cut to ward off the negative economic repercussions of the coronavirus.

After three hours from the joint conference call between G7 finance ministers and central bankers, the Fed opted to slash interest rates from 1.75 percent to 1.25 percent.

“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 [Fed] decided today to lower the target range for the federal funds rate by 1/2 percentage point,” the Fed statement said.

As of 11 a.m. on Tuesday, eyes will focus on Fed Chair Jerome Powell as he plans to hold a press conference to discuss the details of the unscheduled rate cut.

It seems that Powell and his colleagues have finally responded to President Trump's ongoing criticism to the Fed's policies.

The Fed's move would come along the Congress preparations for a $7.5 billion emergency funding package to help with the costs associated with fighting the epidemic.

The US dollar index extended its losses to hit lowest level in 7 weeks at 96.87, recording a decline for an eighth session in a row.

US stocks erased their earlier gains after the Federal Reserve's sudden decision, where the S&P 500 turned into red, shedding 0.32%, after a strong start to today's session that saw a 1.5 percent rise.

The yield on the US two-year Treasury bonds plunged to 0.78%, while the yield on 10-year bonds dropped to less than 1.08%.

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