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Previously, the target range of the interest rate varied from 1% to 1.25%. Now the benchmark for both short-term lending for financial institutions and a peg to consumer rates will be targeted at 0% to 0.25%. Dow Futures lost 1,000 points.
Yesterday evening, U.S. stock futures plummeted by 5%. Dow futures plunged 1,041 points or about 4.5%. S&P 500 futures closed down about 4.8%, while Nasdaq futures were down 4.5%. The drop followed the initiative of the U.S. Federal Reserve.
On Sunday, the Federal Reserve announced cutting the interest rate to almost a zero point. Besides, the institution implemented a quantitative easing program worth $700 billion in order to help the economy cope with the consequences of COVID-19.
The Fed stated:
“The coronavirus outbreak has harmed communities and disrupted economic activity in many countries, including the United States.”
Previously, the target range of the interest rate varied from 1% to 1.25%. Now the benchmark for both short-term lending for financial institutions and a peg to consumer rates will be targeted at 0% to 0.25%. Furthermore, the Federal Reserve also lowered the rate of emergency lending at the discount window for banks by 125 basis points to 0.25% and prolonged the term of loans to 90 days.
The Fed explained:
“The discount window plays an important role in supporting the liquidity and stability of the banking system and the effective implementation of monetary policy … [and] supports the smooth flow of credit to households and businesses.”
Notably, this is the second time the Fed cuts interest rates in the last two weeks. On March 3, the institution decided to take 50 basis points off the rate. The cut is a sign that of investors’ anxiety about the recession the coronavirus is likely to cause.
Following the Fed’s announcement, the three market indexes reacted by a decline. Over the last week, they all lost over 20% from their recent peaks.
Will the Recession Start?
The investors were not convinced by the Fed’s move. They have fears that the current bearish situation marks the beginning of the recession. However, as analysts state, this downgrading will last not long, and the US will avoid the economic and technical catastrophe. For example, JPMorgan analysts believe the unlucky streak will end by the beginning of June when the coronavirus will downtrend.
As for today, Nasdaq, S&P 500, and Dow futures plunged again. Dow Jones Industrial Average and S&P 500 were down 3,3% and 4% accordingly down at the opening.
Apple Inc (NASDAQ: AAPL) has closed all Apple Stores outside of China because of the virus. Nike Inc (NYSE: NKE) is closing its stores in the U.S., Europe and more, which affected its stock price badly.
Crypto prices have also dropped in the morning. Bitcoin dropped to $5500 in the early trading hours, and at the moment of writing makes up $4,875 per coin.