Coronavirus poses 'evolving risks' to the economy

The Fed slashed its benchmark interest rate to a range of 1% to 1.25%, down from the previous range of 1.5% to 1.75%.

"The fundamentals of the U.S. economy remain strong. However, the coronavirus poses evolving risks to economic activity," the Fed policy panel says, as a way of explaining what it did.

Officials say they'll continue to follow the coronavirus crisis and will be ready to cut rates even deeper, if necessary.

"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 says.

If you've been worried about your shrinking 401(k) or IRA balance, you can take some comfort knowing the Fed is on the case. But it's also a good idea to have a financial adviser you can turn to in these uncertain times.

Drawing comparisons to the financial crisis

The Fed hasn't delivered an emergency rate cut since the 2008 financial crisis, and the new half-point reduction also is the biggest since that time. In December 2008, the central bank dropped rates by up to one full percentage point until they were near zero — an all-time low.

The deadly coronavirus continues to spread to new parts of the world, including the U.S., where at least 100 cases have been confirmed and a half-dozen people have died. The outbreak has killed more than 3,000 people worldwide.

In China, where the outbreak first emerged, over 2,700 people have died, and factories, stores and Disney theme parks shut down as part of efforts contain the health threat.

The coronavirus is seen as being similar to the 2008 crisis because of the potential risks for the world economy.

The Fed cut its interest rate 10 times in 2007 and 2008 and kept it close to zero for seven years to nurse the U.S. economy back to health.

The central bank is battle-ready again, though this time it doesn't have quite as much ammunition as it did over a decade ago.

Mortgage rates are close to all-time lows, other interest rates also are in the cellar, and the Fed doesn't have a whole lot of room to do much cutting.

And that has sparked speculation that the Federal Reserve might have to resort to negative interest rates, which is where other central banks have gone.

About the Author

Doug Whiteman

Doug Whiteman

Editor-in-Chief

Doug Whiteman is the editor-in-chief of MoneyWise. He has been quoted by The Wall Street Journal, USA Today and CNBC.com and has been interviewed on Fox Business, CBS Radio and the syndicated TV show "First Business."

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