Chairman Powell Says "Will Use Economic Support Measures" as Stock Market Collapses

Emergency Verbal Intervention as Dow Jones Index Drops 1000 Points Consecutively Due to COVID-19 Impact
Possibility of Interest Rate Cut in March Increases

[Image source=Reuters Yonhap News]

[Asia Economy New York=Correspondent Baek Jong-min] Jerome Powell, Chairman of the U.S. Federal Reserve (Fed), hinted at the possibility of market intervention through interest rate cuts as financial market turmoil caused by the novel coronavirus disease (COVID-19) continued.

On the 28th (local time), Powell issued an unscheduled statement saying, "We will act appropriately to support the economy and use our tools."

This is interpreted as the Fed's unusual verbal intervention in the stock market, as concerns about a financial market collapse arose after the Dow Jones index of the New York Stock Exchange fell more than 1,000 points three times this week up to that day.

After Powell's remarks were conveyed, the Dow Jones index significantly reduced its losses, which is also seen as an effect of such comments. This indicates that market movements were unusual, and some calm was restored only after Powell stepped in.

In an emergency statement posted on the Fed's website, Powell pointed out, "The fundamentals of the U.S. economy remain strong," but added, "However, the coronavirus is increasing risks to economic activity." He emphasized, "The Fed is closely monitoring developments and their implications for the economic outlook."

The Chicago Board Options Exchange's FedWatch tool estimates a 70% chance that the Fed will cut interest rates by March, and forecasts that there will be three rate cuts within the year are spreading. Investment bank Goldman Sachs predicted that the Fed would cut interest rates by 0.75 percentage points between March and June. BOA also expects a 0.5 percentage point rate cut at the March Federal Open Market Committee (FOMC) meeting.

On the same day, U.S. Treasury bond yields fell to 1.114%, continuing a record-breaking streak, which is also acting as a pressure factor for the Fed to cut interest rates. A decline in bond yields means a rise in bond prices.

In the market, there is also speculation that if the Fed does not cut the benchmark interest rate, it may resume quantitative easing (QE) to supply liquidity.