The U.S. Federal Reserve lowered the target range for the federal funds rate by 50 basis points to 1 to 1.25 percent, as the COVID-19 outbreak poses "evolving risks" to economic activity, the U.S. central bank said Tuesday.
In a surprise announcement, the Fed said that "in light of these risks and in support of achieving its maximum employment and price stability goals," the Federal Open Market Committee (FOMC), the Fed's policy-setting body, decided to cut its key interest rate by 0.5 percentage point.
Federal Reserve Chairman Jerome Powell said in a press conference that since the January FOMC meeting, the spread of the coronavirus has brought new challenges and risks. "The magnitude and persistence of the overall effects on the economy, however, remain highly uncertain, and the situation remains a fluid one," said Powell.
"Against this background, the Committee judged that the risks to the U.S. outlook have changed materially," he said. "In response, we have eased the stance of monetary policy to provide some more support to the economy."
Noting that the outbreak will require a "multi-faceted" response, the U.S. Fed chair told reporters that the central bank doesn't have all the answers, urging healthcare professionals and fiscal authorities to take measures they deem appropriate.
"But we do believe that our action will provide a meaningful boost to the economy," said Powell. "More specifically, it will support accommodated financial conditions and avoid a tightening of financial conditions which can weigh on activity and will help boost household and business confidence."
Earlier in the day, finance ministers and central bank governors of the Group of Seven (G7) industrialized nations said in a joint statement issued after an emergency conference call that they will "use all appropriate policy tools" in the efforts to mitigate the economic impact from the ongoing COVID-19 outbreak.
"That is a statement of general support," said Powell. "And I think it's up to individual countries, individual fiscal policies and individual central banks to do what they are going to do."
The U.S. Fed chair added that it is possible there will be some "more formal coordination" as a move forward.
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