US Fed cuts funds rate by 0.5 per cent to help combat coronavirus economic threat

As the effects of the coronavirus continue to threaten the economy, the US Federal reserve has lowered interest rates to limit further impact. 

The Federal Reserve has lowered its key Fed Funds rate by 0.5 percent, the first unscheduled emergency rate cut since 2008, taking it to a range of 1-1.25 per cent. 

An openness to further easing has been signalled as G7 finance ministers and central bankers commit to use all appropriate policy tools to support growth in the face of the COVID-19 threat. 

The Fed is likely to cut rates by at least another 0.5 percent in the months ahead. And we continue to see the the likelihood of an RBA cut again next month following the March cut.

RBA Governor Philip Lowe cited the coronavirus nine times in his brief meeting announcement.

AMP Capital chief economist Shane Oliver says monetary and fiscal policy easing is necessary to help minimise some of the worst economic fall out from the coronavirus outbreak (including liquidity and insolvency problems) and speed the eventual recovery.

"However, we still need to see signs that the coronavirus outbreak is coming under control – with eg a peaking in the daily number of new cases beyond China or say antivirals being successfully deployed.

"At present the daily number of new cases are still trending up in numerous countries outside China so it’s premature to say with much confidence that we have seen the low point in share markets.

NAB now expect the Fed to cut rates by 25 basis points at its March and April meetings.

"We are tentatively pencilling in 25bps at each of these meetings, which would take the fed funds target range to 0.5 to 0.75%," NAB advised.

"For now, we are assuming that the Fed will keep the fed funds rate at this level through our projection period (to 2021) but the risks around this are skewed towards it being more aggressive in the near term (but with a risk of partial reversal of the rate cuts further out assuming growth recovers in the second half of this year)."