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The impact of the coronavirus outbreak is being felt in the global economy, and now central banks are taking measures to protect markets from crashing. For instance, the Federal Reserve has made an emergency cut on interest rates by half a percentage point, which is the biggest since the 2008 financial crisis.

The US Federal Reserve announces Interest rate cuts by 0.5%

The Fed made the move as a way of protecting the economy from the impact of then coronavirus. According to the Federal Reserve Chief Jerome Powell, the economy was at risk, and the central banks chose to make the move to protect financial markets and the US economy as coronavirus continues to spread.

Following the announcement of interest cuts stock markets rallied, but concerns regarding the Fed’s ineffectiveness in the face of the risks financial and economic risks related to the virus quickly fired a sell-off. By late Tuesday, markets dropped sharply with bond yields plummeting to unimaginable lows as investors rushed to seek safe places to put their money.

Rate cuts to protect against a downturn

Following the Fed’s move, US interest rates are now below 1.25% from 1.75%. According to Powell, all Fed leaders unanimously approved the rate cuts insisting that the economic fundamentals of the US are still healthy, but sentiment has changed.

He added that although the Fed isn’t able to develop a vaccine or help in fixing a broken supply chain as a result of the outbreak, the interest cuts will nonetheless help in protecting the economy from a recession. Powell said that the Fed doesn’t have answers to what is happening, but the move will offer significant support to the economy. It will help in providing considerate conditions and avoid the tightening of financial conditions, which will thus help in boosting business and household confidence.

The US is not the only one that has taken such measures as central banks of various countries have also announced interest rate cuts. Even the IMF and the World Bank indicated that they will offer support to poor countries in fighting the effects of coronavirus.