Updates with Fed's interest rate cut in first two paragraphs
The US Federal Reserve today cut its benchmark interest rate by 0.5pc, citing risks to economic activity posed by the spreading coronavirus outbreak.
The Fed's Open Market Committee made the rate cut decision, which brings its federal funds rate to a target range of 1-1.25pc, two weeks ahead of its regularly scheduled meeting. "The fundamentals of the US economy remain strong. However, the coronavirus poses evolving risks to economic activity," the Fed said.
Earlier today, finance ministers and central bank chiefs of the G7 group of major economies said they will intervene to support their economies if the coronavirus outbreak poses risks to economic activity.
The G7 said it is closely monitoring the spread of the coronavirus and its effects on markets and economic conditions. "We reaffirm our commitment to use all appropriate policy tools to achieve strong, sustainable growth and safeguard against downside risks," US treasury secretary Steven Mnuchin and Federal Reserve chairman Jay Powell said on behalf of the group.
"G7 finance ministers are ready to take actions, including fiscal measures where appropriate," according to the statement, while "G7 central banks will continue to fulfill their mandates, thus supporting price stability and economic growth while maintaining the resilience of the financial system."
The spread of the novel coronavirus is expected to cut global economic growth by half, the OECD said yesterday. And the IMF and the World Bank pledged to provide assistance to countries worst hit by the outbreak to contain the economic fallout from restrictions on industrial activity and travel.
The statement came after a teleconference discussion organized by the US, as the host of the G7 meeting this year. But Washington shows no willingness to lead the way with fiscal stimulus measures, in part because it contradicts President Donald Trump's view that the US economy is strong enough to withstand any effects from the outbreak.
Trump in recent weeks stepped up calls on the Fed to cut its interest rates, in line with his previous criticism that the Fed has set its interest rates too high.
Trump yesterday also called on Congress to cut the payroll tax — a proposal his administration has been unable to push through Congress for the past two years. Mnuchin, appearing before the House of Representatives Ways and Means Committee today, said "the administration is closely monitoring the coronavirus and its effects on public health, as well as any effects on supply chains, markets, and the broader economy." But Mnuchin asked Congress only for emergency funding for health preparedness to deal with the outbreak.
Economic contagion from the outbreak so far has been limited largely to China, South Korea and Japan, even though widespread travel restrictions have cut into jet fuel demand globally. The US administration is planning to expand the scope of air travel restrictions with all European countries, after advising against travel to northern Italy.
