Federal Reserve Slashes Interest Rates on ‘Evolving’ Coronavirus Risk

Federal Reserve Slashes Interest Rates on ‘Evolving’ Coronavirus Risk

Investors are also anticipating other central banks will follow up on the Federal Reserve's surprise move Tuesday to slash interest rates by half a percentage point in hopes of protecting the economy from the economic fallout of a fast-spreading virus.

The cut, which lowers the rate to the range of 1% to 1.25%, is the first of its kind since the 2008 financial crisis.

"Certainly they got the reaction that they wanted for the first little bit after they announced their move, which is the markets moving up, but after that it's been down", Anish Chopra, managing director with Portfolio Management Corp.

The Dow Jones Industrial Average soared more than 1,100 points, or 4.5%, Wednesday as governments and central banks around the globe took more aggressive measures to fight the virus outbreak and its effects on the economy.

The broad-based S&P 500 also declined 0.6 per cent to 3,071.86, while the tech-rich Nasdaq Composite Index shed 0.4 per cent to 8,912.76. If you're a long-term investor, the thing you should do now is ride this out.

As the threat of a coronavirus outbreak in the U.S. continues to increase, G7 finance ministers and central bank governors issued a statement Tuesday. "There is no way to judge the global economic and EPS impact of the COVID-19 virus as cases globally are still ramping".

The rate cut didn't initially achieve its goal because of the old trader adage: Buy on rumour, sell on news.

But Monday's rebound was strong. But now that the cut has been done, it raises the question about what's next.

"The Fed can cut rates all it wants, that is not going to put a person in a factory producing a product if that person is quarantined", said Randy Frederick, vice president of trading and derivatives for Charles Schwab in Austin, Texas.

It was the Fed's first rate cut since previous year, when it reduced its key short-term rate three times.

The Dow climbed 760 points, or 2.9%, to 26,170 as of noon Eastern time. The Nikkei 225 index closed 1 percent higher, while the Shanghai Composite index rose 3.2 percent.

The price of US crude oil was up 5.2%.

Materials was one of four sectors to climb.

The dollar gained to 107.44 yen from Tuesday's 107.12 yen.

Gold rose $28.20 to $1,592.30 per ounce, silver rose 29 cents to $16.68 per ounce and copper rose 5 cents to $2.60 per pound. The yield on the 10-year Treasury note rose to 1.15 percent from 1.12 percent late Friday.

The Canadian dollar traded for 74.83 cents U.S. compared with an average of 74.87 cents USA on Monday.

Real Estate and Healthcare sectors post modest gains. The S&P 500 index jumped 4.6 percent, its best day since December 2018.

The April crude contract was up 43 cents U.S. at US$47.18 per barrel and the April natural gas contract was up 4.4 cents at US$1.80 per mmBTU.

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