The Federal Reserve Open Market Committee on Tuesday shaved a half point off its benchmark interest rate in order to ease uncertainty over the impact of the coronavirus outbreak. It was the first time the Fed made a rate decision outside of its regular monthly meeting since the height of the financial crisis in 2008.
Here’s what the Fed said: “The fundamentals of the U.S. economy remain strong. However, the coronavirus poses evolving risks to economic activity. In light of these risks and in support of achieving its maximum employment and price stability goals, the Federal Open Market Committee decided today to lower the target range for the federal funds rate by 1/2 percentage point, to 1 to 1‑1/4 percent. 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.”
Lawrence Yun, chief economist at the National Assocation of Realtors, assessed the impact of the cut on the real estate markets. “The coronavirus has quickly upended global economic expansion and introduced the significant uncertainty of a possible recession,” said Yun. “Today’s interest rate cut is therefore an appropriate response to changing events. The real estate sector will hold up very well because of the rate cut. Hesitant home buyers will be enticed to take advantage of low interest rates. Commercial property prices will rise due to higher returns than can be had from the bond market after adjusting for risks.”
Joel Kan, associate VP of economic and industry forecasting at the Mortgage Bankers Association, said, “The U.S. economy, backed by the healthy labor market, enters this period in a strong position. However, last week’s financial market volatility and fears of a widespread coronavirus outbreak are clearly on the minds of policy officials. Long-term, further spread of the virus would likely dampen consumer confidence and spending, and ultimately slow economic growth. The 10-year Treasury has fallen to an all-time low over the past week, bringing mortgage rates down with it. If Treasury rates decline further, it is likely that mortgage rates will follow, giving more homeowners the incentive to refinance. For prospective buyers, low rates boost purchasing power, although some may also pause their home search given the uncertainty.”
The yield on the 10-year Treasury, to which mortgage rates are loosely tied, fell below 1% by Tuesday afternoon. Financial markets, at first steady after the rate-cut announcement, turned wobbly as the morning wore on as investors weighed the possibility that economic damage from the coronavirus outbreak could be worse that previously thought. CNBC’s Jim Cramer gave voice to that concern:
