London Daily

Focus on the big picture.
Wednesday, Oct 08, 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
France: Less Than a Month After His Appointment, the New French Prime Minister Resigns
Hungarian Prime Minister Viktor Orbán stated that Hungary will not adopt the euro because the European Union is falling apart.
Sarah Mullally Becomes First Woman Appointed Archbishop of Canterbury
Mayor in western Germany in intensive care after stabbing
Australian government pays Deloitte nearly half a million dollars for a report built on fabricated quotes, fake citations, and AI-generated nonsense.
US Prosecutors Gained Legal Approval to Hack Telegram Servers
Macron Faces Intensifying Pressure to Resign or Trigger New Elections Amid France’s Political Turmoil
Standard Chartered Names Roberto Hoornweg as Sole Head of Corporate & Investment Banking
UK Asylum Housing Firm Faces Backlash Over £187 Million Profits and Poor Living Conditions
UK Police Crack Major Gang in Smuggling of up to 40,000 Stolen Phones to China
BYD’s UK Sales Soar Nearly Nine-Fold, Making Britain Its Biggest Market Outside China
Trump Proposes Farm Bailout from Tariff Revenues Amid Backlash from Other Industries
FIFA Accuses Malaysia of Forging Citizenship Documents, Suspends Seven Footballers
Latvia to Bar Tourist and Occasional Buses to Russia and Belarus Until 2026
A Dollar Coin Featuring Trump’s Portrait Expected to Be Issued Next Year
Australia Orders X to Block Murder Videos, Citing Online Safety and Public Exposure
Three Scientists Awarded Nobel Prize in Medicine for Discovery of Immune Self-Tolerance Mechanism
OpenAI and AMD Forge Landmark AI-Chip Alliance with Equity Option
Munich Airport Reopens After Second Drone Shutdown
France Names New Government Amid Political Crisis
Trump Stands Firm in Shutdown Showdown and Declares War on Drug Cartels — Turning Crisis into Opportunity
Surge of U.S. Billionaires Transforms London’s Peninsula Apartments into Ultra-Luxury Stronghold
Pro Europe and Anti-War Babiš Poised to Return to Power After Czech Parliamentary Vote
Jeff Bezos Calls AI Surge a ‘Good’ Bubble, Urges Focus on Lasting Innovation
Japan’s Ruling Party Chooses Sanae Takaichi, Clearing Path to First Female Prime Minister
Sean ‘Diddy’ Combs Sentenced to Fifty Months in Prison Following Prostitution Conviction
Taylor Swift’s ‘Showgirl’ Launch Extends Billion-Dollar Empire
Trump Administration Launches “TrumpRx” Plan to Enable Direct Drug Sales at Deep Discounts
Trump Announces Intention to Impose 100 Percent Tariff on Foreign-Made Films
Altman Says GPT-5 Already Outpaces Him, Warns AI Could Automate 40% of Work
Singapore and Hong Kong Vie to Dominate Asia’s Rising Gold Trade
Trump Organization Teams with Saudi Developer on $1 Billion Trump Plaza in Jeddah
Manhattan Sees Surge in Office-to-Housing Conversions, Highest Since 2008
Switzerland and U.S. Issue Joint Assurance Against Currency Manipulation
Electronic Arts to Be Taken Private in Historic $55 Billion Buyout
Thomas Jacob Sanford Named as Suspect in Deadly Michigan Church Shooting and Arson
Russian Research Vessel 'Yantar' Tracked Mapping Europe’s Subsea Cables, Raising Security Alarms
New York Man Arrested After On-Air Confession to 2017 Parents’ Murders
U.S. Defense Chief Orders Sudden Summit of Hundreds of Generals and Admirals
Global Cruise Industry Posts Dramatic Comeback with 34.6 Million Passengers in 2024
Trump Claims FBI Planted 274 Agents at Capitol Riot, Citing Unverified Reports
India: Internet Suspended in Bareilly Amid Communal Clashes Between Muslims and Hindus
Supreme Court Extends Freeze on Nearly $5 Billion in U.S. Foreign Aid at Trump’s Request
Archaeologists Recover Statues and Temples from 2,000-Year-Old Sunken City off Alexandria
China Deploys 2,000 Workers to Spain to Build Major EV Battery Factory, Raising European Dependence
Speed Takes Over: How Drive-Through Coffee Chains Are Rewriting U.S. Coffee Culture
U.S. Demands Brussels Scrutinize Digital Rules to Prevent Bias Against American Tech
Ringo Starr Champions Enduring Beatles Legacy While Debuting Las Vegas Art Show
Private Equity’s Fundraising Surge Triggers Concern of European Market Shake-Out
Colombian President Petro Vows to Mobilize Volunteers for Gaza and Joins List of Fighters
×