The Federal Reserve announced an emergency interest rate cut of 50 basis points in the evening of March 3 local time, reducing the excess reserve ratio（IOER）by 50 basis points to 1.1% . The Federal Open Market Committee unanimously agreed to cut interest rates.
U.S. stocks rallied on gold
The Fed said the reason for the rate cut was that the new coronavirus posed a changing risk, that it would closely monitor economic developments and their impact on the economic outlook, and that it would use relevant tools to take appropriate action to support the economy. The Federal Open Market Committee said the fundamentals of the U.S. economy remain strong. But US federal funds rate futures show more cuts to come in 2020.
After the announcement, spot gold rose $6 short-term, spot silver rose $0.08 short-term. Both oil prices rose $1. The Dow and S & P 500 were up nearly 1 percent, the NASDAQ was up 0.6 percent and the Dow was up more than 300 points.
G7 finance ministers commit to valley economy
Finance ministers and central bank governors of the Group of seven countries issued a joint statement on the 3rd, saying that given the potential impact of the new pneumonia outbreak on the global economy, they will use “all appropriate policy tools” to achieve strong and sustainable growth and to guard against downside risks. But the joint statement gave no details of the operation.
In the morning, United States Secretary of the Treasury and Federal Reserve Chairman Powell led a conference call with G7 finance ministers and central bank governors to discuss the impact of the NCP epidemic on the world economy. A joint statement issued after the meeting said G7 finance ministers were ready to take action, including appropriate financial measures, to help respond to the epidemic and support economic growth, in parallel with efforts to expand health services. The G7 central bank governors will continue to discharge their responsibilities to support price stability and economic growth while maintaining the resilience of the financial system.
The statement also welcomed the readiness of the International Monetary Fund, the World Bank and other international financial institutions to help members cope with the human and economic challenges posed by the epidemic, using existing tools to the maximum extent possible. G7 finance ministers and central bank governors stand ready to work together further to take “timely and effective” measures.
Australia to cut interest rates
Earlier, the Bank of Malaysia announced that it would cut its key interest rate by 25 pips to 2.5% , the lowest level in 10 years. The RBA also took the lead in announcing a 0.25% cut, bringing the benchmark rate to a record low of 0.5% , to cope with the impact of the outbreak.
European Central Bank vice-president said the outbreak of new pneumonia had added to the uncertainty about the global growth outlook and that the central bank was prepared to adjust its policy tools if necessary to deal with the possibility that the outbreak could disrupt economic growth. The Bank of England said it was working with international partners and the UK Treasury to ensure that all necessary measures were taken to cushion the economic impact of the outbreak and to ensure financial and money market stability.
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