The US Federal Reserve System (FRS) announced a reduction in the federal financing rate immediately by 0.5 percentage points to 1-1.25%. This is the first decline since the 2008 crisis between planned meetings of the Fed Open Market Operations Committee.
Committee members unanimously endorsed monetary easing. The Fed also made it clear that it could take additional stimulus measures. “The committee is closely monitoring the development of the situation and its impact on the prospects for the economy, will use its tools and act as it should to support the economy,” the statement said.
Earlier on Tuesday, finance ministers and central bankers of the G-7 countries announced, following a teleconference with each other, that they were ready to take joint action, including fiscal stimulus measures, to reduce the economic risks of the spread of coronavirus. “Given the potential impact of the [virus] COVID-19 on global economic growth, we reaffirm our readiness to use all appropriate policy tools to ensure strong, sustainable growth and protection against the risks of its slowdown,” their statement said.
On Monday, the Organization for Economic Co-operation and Development lowered its forecast for global GDP growth rates in 2020 by 0.5 pp to 2.4%. It also allowed an even more serious slowdown if the virus outbreak is longer and stronger, up to 1.5% in 2020.