Powell: In Face of `New Risks to Economic Outlook' From Coronavirus, Fed Chose to Cut

Fed Chairman Jerome Powell says that in the face of "new risks to the economic outlook" from the deadly coronavirus, the Fed chose to act by cutting rates. He said the "fundamentals of the U.S. economy remain strong."
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Federal Reserve Chairman Jerome Powell said Tuesday that the Fed saw "a risk to the outlook for the economy" from the deadly coronavirus and chose to act by cutting rates.

Powell made his comments at a news conference after the Fed on Tuesday cut its benchmark lending rate by 50 basis points. 

The surprise decision was designed to cushion the economic impact of the coronavirus. It came just hours after a meeting of G-7 finance ministers and central bankers.

"My colleagues and I took this action to help the U.S. economy keep strong in the face of new risks to the economic outlook," said Powell, who added that "the fundamentals of the U.S. economy remain strong."

Stocks initially traded higher after the surprise Fed move, but all three major indexes at last check were lower.

The move cuts the federal funds rate to a range of 1% to 1.25% and follows an emergency meeting of G-7 finance ministers and central bankers in the premarket trading session.

It's the biggest rate cut since fall 2008 and the first emergency rate move since the global financial crisis.

The Fed is scheduled to start its regular two-day policy meeting on March 18.

The rate cut "underscores the Fed’s decision to get ahead of any economic risks posed by a potential viral outbreak in the U.S.," Charlie Ripley, senior investment strategist for Allianz Investment Management, said in emailed comments.

"Overall, it appears the Fed has gone down the path of taking out more insurance from market risks in the form of rate cuts in order to keep extending the current economic expansion." 

“The coronavirus poses evolving risks to economic activity,” the central bank said in a statement issued alongside the rate cut. “In light of risks and in support of achieving maximum employment and price stability goals, the Federal Open Market Committee decided today to lower the target range for the federal funds rate.”

The coronavirus outbreak, Powell said, has “disrupted economic activity in many countries and has prompted significant movements in financial markets.”

“The virus, and the measures that are being taken to contain it, will surely weigh on economic activity, both here and abroad, for some time,” Powell said.

“We are beginning to see the effects on the tourism and travel industries, and we are hearing concerns from industries that rely on global supply chains," he said.

“The magnitude and persistence of the overall effects on the economy, however, remain highly uncertain and the situation remains a fluid one. Against this background, the committee judged that the risks to the U.S. outlook have changed materially.”

The rate move also follows a series of tweets from President Donald Trump, who urged the central bank to deliver a "big" rate cut in order to keep pace with central banks around the world in reacting to the economic threat from the coronavirus.

Powell, a frequent target of Trump's criticism, told reporters that there were never any political considerations in making the rate-cut decision. He stressed that "it's very important the American people understand that."

Earlier Tuesday, finance ministers and central bankers from the G-7 pledged to "closely monitor" financial-market developments amid the current coronavirus crisis. But they stopped short of offering specific coordinated policy action to cushion the impact on the world's most-developed economies.

Coronavirus cases have been accelerating at a rate that is eight times faster outside China - the epicenter of the outbreak - than inside. The number of non-China infections is now estimated at nearly 11,000.