Fed Slashes Interest Rates in Emergency Move as Coronavirus Fears Mount

But this time, the central bank moved pre-emptively — trying to get ahead of the economic problem, rather than waiting until the fallout was more fully realized. It came after Australia’s and Malaysia’s central banks lowered borrowing costs early Tuesday, and could presage a wave of action from global policymakers as officials rush to offset coronavirus fallout.

There are limits to what rate cuts can do to contain the damage. While they can bolster confidence and help to keep borrowing cheap, there are questions about how effective rate cuts will be in counteracting the fallout from the virus. Central banks cannot keep disease from spreading, prevent workers from losing hours at work, or mend broken supply chains amid factory delays.

The Fed’s move “can provide a short-term floor under sentiment, which is what they’ve done today,” Neil Dutta, head of economic research at Renaissance Macro Research, wrote in a note following the announcement. “But the Fed’s tools are imperfect and not adequate to deal with a public health crisis.”

Mr. Dutta added that “the panic needs to come from the opposite of 17th Street” — which is where the White House is.

President Trump, who has no control over monetary policy, has been urging the Fed to lower interest rates, saying the United States should have the lowest borrowing costs. But the Fed’s half-point cut did little to assuage his complaints. After the rate cut, Mr. Trump said on Twitter that it was not enough and suggested that further easing was necessary. “We are not playing on a level field. Not fair to USA,” he wrote.

Article source: https://www.nytimes.com/2020/03/03/business/economy/fed-interest-rates-coronavirus.html