US Federal Reserve cuts interest rates to near zero

It is the second cut from the US Federal Reserve in a fortnight.

It is the second cut from the US Federal Reserve in a fortnight. Photo: Shutterstock

The US Federal Reserve has cut interest rates for the second time in less than a fortnight in another emergency move to help shore up the US economy amid the rapidly escalating global coronavirus pandemic.

In a statement, the central bank said it was cutting rates to a target range of 0 per cent to 0.25 per cent.

“The effects of the coronavirus will weigh on economic activity in the near term and pose risks to the economic outlook. In light of these developments, the committee decided to lower the target range,” the Fed said on Monday (Australian time).

“The committee expects to maintain this target range until it is confident that the economy has weathered recent events and is on track to achieve its maximum employment and price stability goals.”

But the emergency rate cut failed to allay fears about the coronavirus’ economic shock. After the announcement, the US dollar sank more than 2 per cent against the yen, while US crude fell 5 per cent to under $30 per barrel.

“[The] market is wondering what the Fed knows that the rest of us don’t,” said Phil Orlando, chief equity market strategist at Federated Hermes in New York.

“Is COVID-19 an even bigger deal than we think?”

Robert Pavlik, the chief investment strategist at a New York investment company, said the Fed “must really be scared”.

“To do that in one fell swoop is really quite shocking,” he said.

“They pulled out whatever weapons they had and my sense is I think it may help initially but I don’t think it goes much further because this is still a developing issue. They used up basically all their ammunition and we’re down to sticks and stones.”

The Fed has already cut interest rates by half a percentage point at an emergency meeting on March 3. That was the first rate cut outside of a regularly scheduled policy meeting since the financial crisis in 2008.

Policymakers were not due to hold their next interest-rate setting meeting until March 17-18.

Meanwhile, the Reserve Bank of New Zealand has slashed the country’s official cash rate to just 0.25 per cent, down from 1.0 per cent, on Monday.

The central bank, which held an emergency meeting on Sunday, also took the step of guaranteeing the rate for the next 12 months as New Zealand looks to cushion the effects of the coronavirus.

The rate is the lowest in RBNZ history.

In response, the New Zealand dollar and stock market continued their downward moves on Monday morning.

The benchmark NZX50 plunged, dropping 3.5 per cent of value in the opening two hours of trading.

-with AAP

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