With panic buying on Main Street and fear-driven sell-offs on Wall Street, the U.S. Federal Reserve cut interest rates to near zero in another emergency move to help shore up the U.S. economy amid the rapidly escalating global coronavirus pandemic.
Stock markets and the dollar fell heavily on Monday, after emergency rate cuts in the United States and New Zealand failed to allay fears about the coronavirus’ economic shock.
U.S. stock futures hit their downlimit before daybreak in Singapore. The dollar sank more than 2% against the yen.
Nikkei futures fell 6%. Australia’s benchmark stock index fell 7% in the first quarter-hour of trade. U.S. crude fell 5% to under $30 per barrel.
The U.S. Federal Reserve cut interest rates by 100 basis points on Sunday to a target range of 0% to 0.25%. It said it would expand its balance sheet by at least $700 billion in coming weeks.
“(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.
Five other central banks also cut pricing on their swap lines to make it easier to provide dollars to their financial institutions facing stress in credit markets.
The swap lines were set up by the Fed, the Bank of Canada, European Central Bank, Bank of England, Bank of Japan and Swiss National Bank in the financial crisis. They also agreed to offer three-month credit in U.S. dollars on a regular basis and at a rate cheaper than usual.
The move was designed to bring down the price banks and companies pay to access U.S. dollars, which has surged in recent weeks as the pandemic spooked investors.
U.S. President Donald Trump called the move “terrific” and “very good news.”
Along with the New Zealand cut, and Australia’s central bank poured $3.6 billion in liquidity into Australia’s financial system.
“Central banks around the world continue to react with emergency interest rate cuts to assist with the shock to demand arising from the spread of the COVID-19 virus, with necessary public health containment efforts coming at a substantial economic cost,” NAB chief economist Alan Oster.
“Central banks are also appropriately providing additional liquidity to financial systems.”