Central bank slashes interest rate amid virus fears

Trader Steven Kaplan watches the numbers at the closing bell on the floor of the New York Stock Exchange, Monday, March 2, 2020. The Dow Jones Industrial Average surged more than 1,200 points, or 5%, on hopes that central banks will take action to shelter the global economy from the effects of the coronavirus outbreak. (Richard Drew/AP photo via Courthouse News)

(CN) – The Federal Reserve on Tuesday announced an emergency half-point cut to its key interest rate, a move meant to protect the economy as the coronavirus outbreak slows markets around the world.

The large cut in the benchmark short-term rate – which influences consumer and business loans from mortgages to credit cards and home equity lines of credit – comes after three cuts last year in response to fears of a global slowdown, before the outbreak began in Wuhan, China, and spread around the world.

The half-point decrease is the biggest cut since fall 2008 and was made in a unanimous vote. The rate is now between 1% and 1.25%.

The Fed said in a statement Monday morning that it is “is closely monitoring developments and their implications for the economic outlook.”

“The fundamentals of the U.S. economy remain strong. However, the coronavirus poses evolving risks to economic activity,” the statement reads. “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.”

U.S. investors reacted favorably to the news, with the Dow Jones Industrial Average rising nearly 200 points by 10 a.m. Eastern time. The index also surged 5% Monday on hopes that the central bank would intervene.