China News Agency Client, Beijing, March 4th (Reporter Li Jinlei) The Federal Reserve announced on the 3rd that it has cut interest rates by 50 basis points. Why did the Federal Reserve cut interest rates sharply? What impact will it have? Will other central banks follow up? Let's see it together.
Fed rate cut statement.
Why cut interest rates?
On March 3, the Federal Reserve announced a sharp 50-bp cut in interest rates, reducing the target range of the Federal Reserve Funds interest rate to 1% -1.25%.
The Fed states that the fundamentals of the US economy remain strong, but new coronaviruses pose evolving risks to economic activity. In light of these risks, in order to support the achievement of its maximum employment and price stability goals, it was decided to cut interest rates.
The Fed said it is closely monitoring developments and their impact on the economic outlook and will use its tools to take action to support the economy as appropriate.
This is the first interest rate cut by the Federal Reserve in 2020. The market has already expected some interest rate cuts, but the news of its interest rate cut announcement is at the time of US stock trading, which is unusual.
Fed Chairman Powell said the rate cut was to help the US economy remain strong. The Fed decided that the economic outlook was at risk and chose to take action.
Dollar and Renminbi infographic. Photo by Li Jinlei
What impact will it have?
Because interest rate cuts can provide the market with more liquidity, it is generally considered to be good news for the stock market.
Affected by the news of a sharp interest rate cut, the US stocks that fell all the way on the day immediately rose in a straight line, but the duration was not long and the trend was volatile.
Last week, U.S. stocks experienced their worst week since the financial crisis. Worried that the spread of the new crown pneumonia epidemic would cause the economy to slow down, all three major stock indexes fell more than 10%, however, US stocks rose sharply on Monday.
Powell said the outbreak of the new crown pneumonia epidemic has disrupted the economies of many countries, and its economic impact remains uncertain. Cutting interest rates can avoid tightening the financial environment and increase household and business confidence.
The Organisation for Economic Cooperation and Development (OECD) recently sharply lowered its forecast for world economic growth in 2020, from 2.9% to 2.4%. The group warned that world economic growth would slow sharply in the first half of 2020.
Wu Chaoming, chief economist of Fortune Securities, believes that the Fed's rate cut will help boost market confidence in the economic growth of the world's largest economy. In addition, other central banks around the world have also adopted interest rate reduction measures, which has helped to restore confidence in the global market. It is conducive to the stability of asset prices and the stabilization of financial risks, and of course it is also good for domestic A shares.
Yang Delong, chief economist of Qianhai Open Source Fund, analyzed that now that the US Federal Reserve cuts interest rates, U.S. stocks are expected to rebound in the short term, but it is more difficult to hit a record high, and the risk of U.S. stocks peaking is still great.
Data map: People's Bank of China. Photo by Zhang Xinlong of China News Agency
Does the People's Bank of China follow?
Before the Federal Reserve cut interest rates, the RBA announced that in response to the impact of the new crown pneumonia epidemic, it lowered the benchmark interest rate by 25 basis points to a historical low of 0.5%.
RBA Governor Philip Lowe said in a statement that the global economic growth in the first half of 2020 will be lower than previously expected due to the new crown pneumonia epidemic, and lowering the benchmark interest rate will help promote economic growth.
After the Fed cuts interest rates, will other central banks follow up? Does China follow?
The G7 Finance Ministers and Central Bank Governors have previously issued a statement promising to use all appropriate policy tools to achieve strong and sustainable growth and prevent downside risks.
Founder Securities said that the Fed's ability to cut interest rates would give the central bank more room to move its monetary policy. It is expected that the global economies will set off a new wave of interest rate cuts, and it will not even rule out that the United States will introduce further quantitative easing policies.
Wu Chaoming analyzed that the People's Bank of China follows interest rate cuts, and the probability is low in the short term. In the early period, the central bank introduced a number of policy measures on the impact of the epidemic on liquidity supply and interest rate reduction. The current task is to implement the policy and observe the effect of the policy. Wait until the March data is available to evaluate whether Complete the overall goals for the year and decide whether to cut interest rates, so the possibility of a rate cut in March is low, unless there are special circumstances.
Regarding the question of whether China will cut its quota or interest rate in the future, Pan Gongsheng, Vice President of the People ’s Bank of China, responded on February 7 that the impact of the epidemic on China ’s economy was temporary and temporary, and had a certain impact on the tourism and catering industries. The epidemic may cause disturbance to economic activity in the first quarter, but after the epidemic eases, China's economy will quickly stabilize and a compensatory recovery will occur. China has ample room for monetary policy control, and the central bank is carefully analyzing and assessing the impact of the epidemic on the economy and making policy reserves. (Finish)