Analytics of US Fed''s emergency rate cut

Saturday, February 01 2020

Most of the world’s advanced economies — Britain, Canada, France, Germany, Italy, Japan and the United States — are characterized by very low or negative interest rates. Accordingly, the Fed was perhaps best-placed to make a move in the light of the evolving situation. In an attempt to address the growing economic risk of the coronavirus epidemic and providing President Donald Trump the stimulus sought, the US Federal Reserve unanimously decided on a 50 basis point rate cut to a range of 1.0-1.25. The Fed had reduced the rate three times in 2019 for a total of 75 basis points. In addition to the cut on its benchmark overnight borrowing rate, the Fed also announced a 50 basis point rate cut on the interest it pays on excess bank reserves. The IOER is used as a guardrail for the fed funds rate.

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