Coronavirus prompts Fed rate cut

Markets expect that the Bank of Canada will also cut rates tomorrow

Ruth Saldanha 3 March, 2020 | 10:30AM

Earlier today, the U.S. Federal Reserve made an emergency rate cut of 50 basis points to a target range of 1% to 1.25%. The vote was unanimous

“The fundamentals of the U.S. economy remain strong. However, the coronavirus poses evolving risks to economic activity,” the Fed said in a statement.

“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.”

Meanwhile, the Bank of Canada is expected to announce its rate decision tomorrow. Bay Street experts believe there could be a Canadian rate cut tomorrow. A Fiera Capital market updated noted that, “The market is pricing in a 100% probability that the Bank of Canada will be cutting rates by 0.25% tomorrow.”

The Fed said 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 decision to cut rates was made ahead of the scheduled policy meeting, which was due on March 17-18, reflecting the urgency with which the Fed believed it had to act.

What should you do?
In a word, nothing. Investing is a long-term game. As far as possible, avoid the noise, focus on your financial goals, and invest according to your own personal financial plan and situation.

About Author

Ruth Saldanha

Ruth Saldanha  Ruth Saldanha is Senior Editor at Morningstar.ca