In order to cope with the risks to the US economy caused by the new coronavirus epidemic epidemic, the US Federal Reserve cut emergency interest rates by 50 basis points on the 3rd, for the first time since the 2008 financial crisis.

However, the U.S. capital market fell sharply on the same day, and investors were still worried. On Monday (March 9), U.S. stocks plunged by more than 7% again, creating the biggest drop since the financial crisis. The Dow fell 2,000 points and oil prices fell 24%!

Analysis believes that the interest rate cut can provide support for the US economy, but the impact of the epidemic is more reflected in the supply chain such as the industrial chain and supply chain. The United States still needs to strengthen international cooperation to meet the challenge. At the same time, the US government's response to the epidemic and the panic of the people will add uncertainty to the general election.

News facts

The Federal Reserve announced on the 3rd that it will cut the target range of the federal funds rate by 50 basis points to the level of 1% to 1.25%. This is the first time the Fed has cut interest rates this year. The Fed issued a statement on the same day saying that the fundamentals of the US economy are still strong, but the new coronavirus epidemic poses an evolving risk to economic activity. In the face of these risks, in order to achieve its full employment and price stability goals, the Fed decided to lower the target range of the federal funds rate. The Fed also said that it is closely monitoring developments and its impact on the economic outlook and will use its policy tools to take appropriate action to support the US economy.

Although the sharp interest rate cuts conformed to the expectations of the US financial market, the US stock market only rebounded briefly and resumed its decline soon. As of the close, the Dow closed down 785.91 points, a drop of nearly 3%. All types of safe-haven assets are still sought after by investors. The yield on 10-year US Treasury bonds fell below 1% for a record low. Gold futures prices rose more than 3%, and once approached the $ 1,650 mark.

In-depth analysis

Although the Fed has issued a "prescription" for interest rate cuts, the "effects" shown in the US financial markets are disappointing. This reminds more people that interest rate cuts are not a "medicine" for anti-epidemic, nor is it a "symptom" for global supply chains that have been hit by the epidemic.

According to Neil Dutta, head of economic research at the Fuxing Institute of Macroeconomics, the Fed's tools are "not a panacea" and not enough to deal with a public health crisis. Bernard Baumour, chief global economist at the Economic Outlook Group, said the Fed ’s rate cuts are like “sticking band-aids on the arm to treat headaches,” and that loose monetary policy will hardly dispel concerns about the outbreak.

In the eyes of many Americans, the "high uncertainty" of the epidemic has always been a boulder in their hearts. Former Federal Reserve economist Julia Coronado believes that people need to know the extent to which the new crown virus has spread in the United States, and today the United States does not even conduct extensive virus detection. There is a high degree of uncertainty on this most basic issue. It is precisely because of the pressure on the US economy.

Regarding the recent turbulence in the US financial market, Zhu Min, president of the National Institute of Financial Research at Tsinghua University, said in an interview with Xinhua News Agency that U.S. stocks have been at a high level in recent years, at a high valuation and high risk, and the company's profit is far behind the stock price Adjustment is an inevitable event.

Instant comment

The U.S. Federal Reserve's emergency interest rate cut is partly due to market demand and partly to the White House pressure. Recently, the spread of the new coronavirus epidemic in multiple countries around the world has caused market concerns about corporate performance and economic growth. US stocks have suffered rare setbacks, and financial market investors have increased their calls for the Federal Reserve to cut interest rates. Although liquidity performance eases financial market anxiety, it cannot solve supply problems such as production stagnation caused by the epidemic.

The trend of US stocks has always been an important indicator of US President Trump's re-election. In the election year, based on consideration of the election situation, Trump will not let the US stocks fall, and urging the Fed to cut interest rates has become an inevitable choice.

It is foreseeable that the US government's control of the epidemic and the appeasement of the public's panic will test Trump's political situation and elections, which will increase the uncertainty of elections.

Background link

US Treasury Secretary Mnuchin expressed support for the Federal Reserve ’s decision to cut interest rates on the 3rd, and said that he was ready to work closely with the US Congress to develop an emergency funding plan.

Many international organizations have also recently announced that they will strengthen cooperation to jointly deal with the impact of the epidemic on the global economy. A few days ago, the International Monetary Fund and the World Bank issued a joint statement saying that they were "ready to help" members to meet the challenges brought by the epidemic.

The World Bank announced on the 3rd that it will provide up to US $ 12 billion in funding to support members in responding to the epidemic. World Bank President Malpas said efforts are being made to provide developing countries with "quick and flexible" support measures, including emergency financing, policy advice and technical assistance, in response to the needs of the epidemic.