London Daily

Focus on the big picture.
Monday, Jul 21, 2025

Coronavirus fears outweigh US Fed’s surprise rate cut as stocks plunge nearly 3 per cent

Coronavirus fears outweigh US Fed’s surprise rate cut as stocks plunge nearly 3 per cent

Half-percentage point emergency cut is the largest since the 2008 financial crisis amid growing concerns that the virus poses an outsize threat to the economy. US stock markets plummet as uncertainty caused by Covid-19 outweighs stimulus

The US Federal Reserve made an emergency interest rate cut of half a percentage point on Tuesday in an effort to support the economy in the face of the spreading coronavirus.

It was the Fed’s biggest rate cut since December 2008, during the financial crisis.

Morgan Stanley researchers led by Ellen Zentner said in a report on Tuesday that “policymakers are not waiting for financial conditions to tighten before acting, as they did last year”.

“They are pre-empting potentially significant financial market disruptions that could amplify downside effects from economic disruptions resulting from the coronavirus.”

But US stock markets were down sharply on Tuesday. The Dow Jones Industrial Average dropped nearly 800 points, or 2.94 per cent, while the S&P 500 and Nasdaq also fell by almost 3 per cent.



“We expect markets to remain volatile,” said Mark Haefele, chief investment officer at UBS Global Wealth Management.

“The unfolding nature of the coronavirus threat – both real and perceived — is not yet quantifiable and, as such, the current global policy response can't immediately be judged as sufficient or insufficient for restoring investor confidence in the short term.”

At a news conference, Powell said the virus “poses evolving risks to economic activity.” As it continues to spread, he said, “the risks to the US outlook have changed materially”, signalling a growing concern that it poses an escalating threat and could hit the global economy harder than previously expected.

The negative market reaction indicates the fear the spreading contagion may exert on global growth.

Even after Powell’s announcement, US President Donald Trump urged that the central bank must do even more.

“The Federal Reserve is cutting but must further ease,” Trump said on Twitter. “It is finally time for the Federal Reserve to LEAD. More easing and cutting!”

Even before the Fed’s action, economists had been cautioning that lower interest rates were not the ideal prescription for the threat posed by Covid-19, the pneumonia-like disease caused by the coronavirus.

Lower rates can lead people and businesses to borrow and spend, which can boost economic activity. But they cannot directly address the problems that the virus has caused – from closed factories to cancelled business travel to disrupted supply chains.

Zentner at Morgan Stanley said that although the rate cut would not be effective in dealing with public health or supply chain issues, “where easier Fed policy would help is to boost the economy, and particularly to support accommodative financial conditions and avoid tight financial conditions”.

The researchers said they expected the Fed to cut the benchmark rate further. “Following today’s action, we are expecting the Fed to deliver a 25 basis point interest rate cut at its April meeting,” they said.

Powell said the Fed would not rule out further actions “especially if increased [coronavirus] testing in the United States results in rising case counts that leads to more volatility and uncertainty”.

Globally, the seven major economies, or G7, pledged on Tuesday to use “all appropriate tools” to deal with the spreading contagion.

The group of major industrial countries – Italy, Germany, Japan, Canada, France, the US and Britain – said it was “ready to take actions, including fiscal measures where appropriate, to aid in the response to the virus and support the economy”.

The joint statement followed an emergency conference call among the finance ministers and central bank presidents, led by Powell and US Treasury Secretary Steven Mnuchin.



The G7 has issued similar joint statements during periods of extreme market turmoil, such as after the 9/11 terrorist attacks and the 2008 financial crisis.

The Dow plunged 11 per cent last week in its worst week since 2008.

“Given the potential impacts of Covid-19 on global growth, we reaffirm our commitment to use all appropriate policy tools to achieve strong, sustainable growth and safeguard against downside risks,” the G7 said.

On Monday, the Organisation for Economic Cooperation and Development (OECD) lowered its forecasts for global growth in 2020 by half a percentage point, to 2.4 per cent – and said the figure could go as low as 1.5 per cent if the outbreak is sustained and widespread.

The OECD said the coronavirus – which was first reported in China in December but has spread to 60 nations in Europe, the US, Latin America and other parts of Asia – could cause the world economy to shrink this quarter for the first time since the financial crisis that began in 2008.

Newsletter

Related Articles

0:00
0:00
Close
Man Dies After Being Pulled Into MRI Machine Due to Metal Chain in New York Clinic
NVIDIA Achieves $4 Trillion Valuation Amid AI Demand
US Revokes Visas of Brazilian Corrupted Judges Amid Fake Bolsonaro Investigation
U.S. Congress Approves Rescissions Act Cutting Federal Funding for NPR and PBS
North Korea Restricts Foreign Tourist Access to New Seaside Resort
Brazil's Supreme Court Imposes Radical Restrictions on Former President Bolsonaro
Centrist Criticism of von der Leyen Resurfaces as she Survives EU Confidence Vote
Judge Criticizes DOJ Over Secrecy in Dropping Charges Against Gang Leader
Apple Closes $16.5 Billion Tax Dispute With Ireland
Von der Leyen Faces Setback Over €2 Trillion EU Budget Proposal
UK and Germany Collaborate on Global Military Equipment Sales
Trump Plans Over 10% Tariffs on African and Caribbean Nations
Flying Taxi CEO Reclaims Billionaire Status After Stock Surge
Epstein Files Deepen Republican Party Divide
Zuckerberg Faces $8 Billion Privacy Lawsuit From Meta Shareholders
FIFA Pressured to Rethink World Cup Calendar Due to Climate Change
SpaceX Nears $400 Billion Valuation With New Share Sale
Microsoft, US Lab to Use AI for Faster Nuclear Plant Licensing
Trump Walks Back Talk of Firing Fed Chair Jerome Powell
Zelensky Reshuffles Cabinet to Win Support at Home and in Washington
"Can You Hit Moscow?" Trump Asked Zelensky To Make Putin "Feel The Pain"
Irish Tech Worker Detained 100 days by US Authorities for Overstaying Visa
Dimon Warns on Fed Independence as Trump Administration Eyes Powell’s Succession
Church of England Removes 1991 Sexuality Guidelines from Clergy Selection
Superman Franchise Achieves Success with Latest Release
Hungary's Viktor Orban Rejects Agreements on Illegal Migration
Jeff Bezos Considers Purchasing Condé Nast as a Wedding Gift
Ghislaine Maxwell Says She’s Ready to Testify Before Congress on Epstein’s Criminal Empire
Bal des Pompiers: A Celebration of Community and Firefighter Culture in France
FBI Chief Kash Patel Denies Resignation Speculations Amid Epstein List Controversy
Air India Pilot’s Mental Health Records Under Scrutiny
Google Secures Windsurf AI Coding Team in $2.4 Billion Licence Deal
Jamie Dimon Warns Europe Is Losing Global Competitiveness and Flags Market Complacency
South African Police Minister Suspended Amid Organised Crime Allegations
Nvidia CEO Claims Chinese Military Reluctance to Use US AI Technology
Hong Kong Advances Digital Asset Strategy to Address Economic Challenges
Australia Rules Out Pre‑commitment of Troops, Reinforces Defence Posture Amid US‑China Tensions
Martha Wells Says Humanity Still Far from True Artificial Intelligence
Nvidia Becomes World’s First Four‑Trillion‑Dollar Company Amid AI Boom
U.S. Resumes Deportations to Third Countries After Supreme Court Ruling
Excavation Begins at Site of Mass Grave for Children at Former Irish Institution
Iranian President Reportedly Injured During Israeli Strike on Secret Facility
EU Delays Retaliatory Tariffs Amid New U.S. Threats on Imports
Trump Defends Attorney General Pam Bondi Amid Epstein Memo Backlash
Renault Shares Drop as CEO Luca de Meo Announces Departure Amid Reports of Move to Kering
Senior Aides for King Charles and Prince Harry Hold Secret Peace Summit
Anti‑Semitism ‘Normalised’ in Middle‑Class Britain, Says Commission Co‑Chair
King Charles Meets David Beckham at Chelsea Flower Show
If the Department is Really About Justice: Ghislaine Maxwell Should Be Freed Now
NYC Candidate Zohran Mamdani’s ‘Antifada’ Remarks Spark National Debate on Political Language and Economic Policy
×