Federal Reserve Announces Emergency Rate Cut Amid Coronavirus Outbreak, First Unscheduled Cut Since 2008 Recession

The U.S. Federal Reserve cut interest rates by a half percentage point Tuesday morning to push back against a recent economic downturn directly tied to the coronavirus illness.

Tuesday's cut lowers the federal-funds rate to between 1 percent and 1.25 percent in order to deliver a "booster shot," as Federal Reserve Chairman Jerome Powell described it, to potential economic disruptions tied to the ongoing spread of the coronavirus. The overarching theme of the Fed's Tuesday emergency announcement: uncertainty.

Powell announced the cut from Washington Tuesday—the largest of its kind since the 2008 financial crisis—signaling the central bank's concerns that the COVID-19 illness is hampering the economy and may promote instability. Despite President Donald Trump's repeated demands for "more easing and cutting" to boost the economy on Twitter, Powell told reporters the Fed is "never going to make any political considerations whatsoever."

"My colleagues and I took this action to help the U.S. economy keep strong in the face of new risks to the economic outlook," Powell said of the emergency reduction. "Our thoughts and prayers go out to those who have been harmed."

The Fed chairman said the "the virus and the measures that are being taken to contain it" has interrupted economic activity most heavily in both U.S. and foreign tourism and travel industries. He said industries that rely on global supply chains have also reported strangleholds on business. Stocks on Tuesday initially rallied in wake of the Fed's action, but fell back off in volatile midday trading.

After the announcement, financial experts warned consumers and homebuyers that the Federal Reserve's first unscheduled, emergency cut since 2008 should be approached with caution.

Bankrate.com senior economic analyst Mark Hamrick joined several economists in noting that by lowering the already super-low interest rates, the Fed is revealing how serious they believe the coronavirus is destabilizing the economy both at home and abroad.

"The full emergency 50 basis points reduction is the first since the financial crisis, a sign how serious central bankers regard the downside risks to the economy. At issue is how much this inoculation can protect the economy and support the financial markets from a public health crisis and supply constrains radiating out from China," Hamrick wrote in a statement provided to Newsweek.

"Now that the benchmark federal funds rate target is 1 to 1‑1/4 percent, it must be noted that the Fed's most reliable ammunition, meaning lower rates, are dwindling," he added. "The other challenge involves how the Fed may take back the rate cuts once the outbreak and economic damage is behind."

The Federal Reserve issued a statement Tuesday followed by a press conference from Washington:

"The fundamentals of the U.S. economy remain strong. However, the coronavirus poses evolving risks to economic activity. In light of these risks and in support of achieving its maximum employment and price stability goals, the Federal Open Market Committee decided today to lower the target range for the federal funds rate by 1/2 percentage point, to 1 to 1‑1/4 percent. The Committee is closely monitoring developments and their implications for the economic outlook and will use its tools and act as appropriate to support the economy."

The Fed's rate-setting committee approved the action unanimously.

During a news conference late Tuesday morning, Powell repeatedly insisted that Trump's frequent demands for the central bank to cut rates in order to boost the economy—for political reasons—had nothing to do with Tuesday's emergency move.

Those demands included tweets that urged the board to take stronger action to protect the economy. "The Federal Reserve is cutting but must further ease and, most importantly, come into line with other countries/competitors. We are not playing on a level field. Not fair to USA. It is finally time for the Federal Reserve to LEAD. More easing and cutting!" the president wrote on Twitter.