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The Federal Reserve announced an emergency rate cut of half a percentage point on March 3, 2020 around 9 A.M. CST. The cut comes in response to the growing economic threat from the novel coronavirus.  The move was the first non-meeting cut since the financial crisis.  Markets had been widely expecting a 50 basis point cut by the next Federal Open Market Committee meeting on March 18.  Earlier this morning, the European Central Bank announced it would commit unspecified tools to help the global economy deal with the threat.

This move gives investors confidence the Fed will take action to help support the effects of exogenous shocks to the system, and therefore a positive in terms of market sentiment.  However, it is unclear if this will really have any long-term effect, as the coronavirus is a supply-side shock that monetary policy cannot effectively address.

 

 

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