News Article

Fed Rate Cut Unable to Shield Markets

By Ricardo Guzman | Wed, 03/04/2020 - 15:26

Fed Rate Cut Unable to Shield Markets


The US Federal Reserve (Fed) decided an emergency half-percentage point rate cut on Tuesday, its first urgent decision since the October 2008 global crisis, reflecting fears that the COVID-19 (coronavirus) outbreak is raising the risk of  recession for one of the world’s top economies.

The rate cut came after G7 finance ministers and central bank governors pledged to maintain “the economic health of the advanced world”. However, the action plan did not prevent losses in Wall Street, with the Dow Jones falling 2.94 percent, the S&P 500 losing 2.81 percent and NASDAQ plunging 2.99 percent following the announcement.

US interest rates were left at 1-1.25 percent. Analysts said that one reason behind the market’s reaction was the lack of expected measures announced by the G7.

The Fed joined the Bank of Australia and Bank of Malaysia in cutting interest rates, while Banco de Mexico is expected to cut another fraction by May or June.

Fed President Jerome Powell said rate cuts cannot fix supply chains, though he also noted the “orderly manner” in which financial markets are functioning.


Oil and currency impacted

The main Mexican stock market indicator IPC had a modest gain of 0.72 percent, after reaching a 2.24 percent increase during yesterday’s volatile session caused by the Fed’s decision.

The Mexican peso closed at 19.39 units per dollar, an appreciation of 11.30 cents, or 0.57 percent.

Oil prices showed no major changes after the Fed’s rate cut. Brent crude rose 1.12 percent in value to reach US$52.44 per barrel, US WTI rose 1.12 percent to US$47.71 per barrel while the Mexican Mix rose 0.41 percent to reach US$42.02 per barrel.

So far this year, Brent has lost 21 percent of its value while the US reference WTI and Mexican mix have also plunged 23 percent and 25.25 percent, respectively.

Ricardo Guzman Ricardo Guzman Editor