The Federal Reserve slashed interest rates on Tuesday in an extraordinary attempt to pre-empt economic fallout as fears about coronavirus mounted, with policymakers voting unanimously for their biggest single cut — and first emergency rate move — since the depths of the 2008 financial crisis.
“The virus and the measures that are being taken to contain it will surely weigh on economic activity” for “some time,” Jerome H. Powell, the Fed chairman, said at a news conference in Washington following the announcement. “The magnitude and persistence” remain “highly uncertain” and “the situation remains a fluid one,” he added.
Rates are set in a 1 percent to 1.25 range following the announcement. and Mr. Powell signaled a willingness to do more if needed.
While he and his colleagues “do like our current policy stance,” he said they are “prepared to use our tools and act appropriately, depending on the flow of events.”
The Fed’s move came as economists around the globe sharply downgraded their economic growth expectations for the year as the coronavirus spreads, idling factories, curtailing travel and quarantining workers. Investors, increasingly nervous that the fallout could plunge the global economy into a dramatic slowdown or even a recession, looked to central banks, first among them the Fed, to respond decisively to the building threat.
Stocks in the United States spiked more than 1 percent immediately after the Fed said it would cut interest rates, before turning lower.
The emergency reduction underlines the fraught moment economic policymakers around the world currently face. Coronavirus has torn across the globe, sickening about 90,000 people. While the vast majority of those cases are in China, where the infections first surfaced, major outbreaks have also taken hold in South Korea, Japan, Iran and Italy, and cases are climbing in other countries.
Emergency rate cuts are not without precedent. The Fed’s move Tuesday echoed a 50 basis point rate cut it made in October 2008 as markets melted down in the wake of the collapse of Lehman Brothers, and another it made earlier that year.
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.
For now, the White House seems unconvinced other measures are necessary. Treasury Secretary Steven Mnuchin said on Tuesday that the Trump administration is not currently considering rolling back or suspending its tariffs on Chinese imports to mitigate the economic effects of the coronavirus.
Mr. Mnuchin said that the Treasury Department has set up a group within the agency to begin looking at tax measures that the Trump administration could take to provide relief to small and medium-sized businesses, if needed. He said that the White House may present proposals to Congress for such “special action” if warranted.
This cut leaves the Fed with limited room to lower rates further should the economy run into danger. Going into the last recession, from 2007 to 2009, the Fed cut rates from above 5 percent. Now it will have just four quarter-point moves left at its disposal.
Coronavirus is a global problem, and the central bank’s counterparts around the world are in an even weaker position. The European Central Bank and Bank of Japan already have negative interest rates, leaving them with limited room to act to offset any crisis — and placing more onus on fiscal policy.
In a joint statement out earlier Tuesday, leaders of the Group of 7 — which also includes Britain, Canada, France, Germany, Italy and Japan — pledged global coordination and cooperation in containing fallout from the coronavirus but fell short of committing to concrete action.
Global finance ministers and central bankers said they were “closely monitoring the spread of the coronavirus disease” and reaffirmed their “commitment to use all appropriate policy tools to achieve strong, sustainable growth and safeguard against downside risks.”
Mr. Powell said the virus response would need to be multifaceted, coming from health care professionals and fiscal authorities when they deem it appropriate.
“We do recognize that a rate cut cannot reduce the rate of infection, it won’t fix a broken supply chain,” he said. “We get that.”
But he would not specify how much he expected other central banks to act to boost growth, or whether the economy needed Congress and Mr. Trump to provide a fiscal stimulus like tax cuts or spending increases.
Mr. Powell also would not say how Fed officials might adjust interest rates if a growth slowdown from the virus fails to materialize — or what economic data points might cause the central bank to act again to cut rates if the virus is worse than expected.
Alan Rappeport contributed reporting from Washington.