The US central bank has announced an emergency rate cut by half a percentage point, responding to the growing economic risk posed by the coronavirus epidemic. The move is also intended to shore up financial markets.
Image: picture-alliance/Xinhua News Agency/Liu Jie
Advertisement
In what's been the first inter-meeting rate cut since the 2008/2009 financial crisis, the Fed's Federal Open Market Committee on Tuesday explained its surprise move with an "evolving risk to economic activity" from the spreading coronavirus.
The vote for the emergency cut to a range of 1% to 1.25% was unanimous and comes 15 days before the Fed's next scheduled policy meeting.
The central bank said it was "closely monitoring developments and their implications for the economic outlook and will use its tools and act as appropriate to support the economy."
Currently amid the longest-ever expansion, the US economy's fundamentals would "remain strong," the central banks noted however.
Nevertheless, the unusually large cut in US benchmark interest rates reflects growing concerns that the spreading virus will strongly hit economies around the world.
Coronavirus' top winners: From Netflix to Tesla
The coronavirus has battered the global economy. But not everyone is losing money. Video streaming platforms and home training systems are seeing a huge boom as people are social distancing and staying at home.
Image: picture-alliance/NurPhoto/Yichuan Cao
In top gear
Tesla has emerged as the most valuable automaker amid the pandemic, eclipsing Toyota and Volkswagen, despite selling only a fraction of cars sold by the traditional behemoths. Tesla shares rose more than 100% in the second quarter during which the carmaker's sales topped estimates thanks to a rapid ramp-up in production at its Shanghai plant, which remained largely unaffected by the pandemic.
Image: Reuters/Y. Sun
Netflix and chill
Netflix has added more than 25 million subscribers in the first six months of the year as lockdowns forced people to stay homebound. The streaming platform has gained $70 billion (€61 billion) in market capitalization this year, making it more valuable than media giants such as Walt Disney, AT&T, the parent of HBO, and Comcast, owner of NBC and Universal Studios.
Image: picture-alliance/AA/M.E. Yildirim
Ditch your gym
The fitness startup Peloton, which makes exercise bikes and also offers online fitness classes, saw its sales jump 66% in its third quarter as stay-at-home orders and coronavirus fears prompted many fitness enthusiasts to ditch their gyms and opt for the company's offerings. In April, Peloton held its largest class ever with more than 23,000 people attending it from home.
Image: picture-alliance/AP Photo/M. Lennihan
Coronovirus billionaires
Moderna Chief Executive Stephane Bancel (R) briefly became a billionaire after the company shipped an experimental coronavirus vaccine for clinical testing in humans, boosting its share price, Bloomberg reported. Malaysia's Lim Wee Chai (L), who owns a majority stake in medical gloves maker Top Glove, also entered the billionaire's club amid the outbreak.
Stay home, stay connected
Few companies have been so talked about during the past few months as teleconferencing firm Zoom. At its peak, the company attracted more than 300 million participants on some days in April, up from 10 million in December, despite some PR troubles around privacy and security issues. The company's market cap has zoomed past $70 billion, up from around $16 billion at the time of its IPO last year.
Image: picture-alliance/dpa/W. Ring
Gaming gains
Gaming provided a perfect escape for millions stuck at home. Online games such as Call of Duty attracted tens of millions of players. The latest game, Nintendo's popular Animal Crossing franchise, sold more than 13 million units within six weeks of its launch in March. Nintendo's Switch and other consoles such as Xbox and PlayStation have seen demand soar over the past few months.
Image: Getty Images/AFP/K. Nogi
Streaming to glory
The Swedish music streaming firm saw its paid subscribers base surge to 130 million in the first quarter amid coronavirus lockdowns. The company saw usage on video game consoles such as Xbox and PlayStation soar during the period. Spotify's US-listed shares are among the top performers so far this year.
Image: picture-alliance/dpa/B. Pedersen
Stay-at-home stocks
The pandemic has boosted stay-at-home stocks such as Apple, Microsoft, Amazon and Facebook — companies whose offerings facilitate online communication, remote working and transactions. These companies have been the main drivers of US indices over the past few months. Companies like Paypal and cloud-computing firm Twilio have also surged in the past months.
Image: Reuters
Empty shelves
Retailers such as Germany's Rewe and France's Carrefour saw food items fly off their shelves during the initial days of the pandemic as panicking shoppers stock up their pantries. The rush at the supermarkets prompted investors to lap up shares of packaged food companies. Online retailers like Amazon are also seeing strong demand as virus-spooked shoppers avoid brick-and-mortar stores.
Makers of face masks, hand sanitizers and sanitary wipes are witnessing a huge surge in demand as shoppers around the world seek ways to protect themselves against the rapidly spreading virus. 3M Corp, which makes face masks among other things, is one of the biggest beneficiaries.
Image: picture-alliance/NurPhoto/Yichuan Cao
10 images1 | 10
Concerted effort?
The Fed's action could be just the first shot in a barrage of rate cuts from central banks worldwide. It came hours after Fed Chairman Jerome Powell and the finance chiefs from the Group of Seven (G7) nations said they would "use all appropriate policy tools to achieve strong, sustainable growth and safeguard against downside risks."
The reduction constitutes a stark shift in the central bank's policy. Previously, Fed policymakers indicated that they would remain on the sidelines during the US election campaign and not lower rates in the course of the year. They pledged to monitor the coronavirus situation, but argued monetary policy was already easy and the fundamentals of the economy strong with unemployment near a 50-year low.
But as the number of reported cases of the virus rose around the world and the US reported its first fatality, pressure mounted on the Fed to boost confidence in the financial markets with a rate cut. Lower interest rates can also help sustain consumer and business sentiment during the current health crisis and ease financial conditions for companies by making debt payments easier to manage.
Most of the world's advanced economies, including Britain, Canada, France, Germany, Italy and Japan, already have very low or negative interest rates. That is why the US Fed is the best-placed major central bank to fight the economic fallout of the spreading coronavirus.
