The US Federal Reserve stepped in on Sunday to prop up the US economy in the face of the escalating Covid-19 crisis.
In its most dramatic move since the 2008 financial crisis the Fed announced it is cutting its benchmark interest rate to near zero and said it would buy $700bn in Treasury and mortgage-backed securities as it attempts to head off a severe slowdown.
Investors were unimpressed with the move, however, and US stock market futures tumbled on the news, hitting their daily down limit of 5% shortly after trading began.
Australian shares closed down almost 10% on Monday as the full trading week began in Asia Pacific. The Nikkei closed down 2.4% in Tokyo and the selling looks set to continue in London where the FTSE100 is tipped to start the day by shedding 3.5%.
The outbreak has already led to large US companies including AT&T, Ford and General Motors sending workers home and has hit industries, especially the travel and leisure industry, particularly hard.
In a coordinated effort to head off a potential global economic crisis, the central bank also said it was working with the Bank of England, the European Central Bank and others to smooth out disruptions in overseas markets.
“The coronavirus outbreak has harmed communities and disrupted economic activity in many countries, including the United States,” the Fed’s rate-setting committee said in a statement. “The Federal Reserve is prepared to use its full range of tools to support the flow of credit to households and businesses.”
The Fed’s move marks an unprecedented second emergency rate cut in as many weeks and came ahead of a week that is expected to be marked once more by dramatic moves in the stock markets.
The central bank had been due to meet this week and was widely expected to announce a cut in rates on Wednesday. At a press conference the Fed chairman, Jerome Powell, said he expected a “significant economic effect” from the virus in the “near term” but that the longer term is still “highly uncertain and, I would say, in fact, unknowable”.
The Fed said it would hold rates at the new, low level “until it is confident that the economy has weathered recent events and is on track” to achieve its twin goals of stable prices and strong employment.