US Surprise Interest Rate Cut Fails to Take Effect

US Stock Market Plunges Despite 0.5% Point Rate Cut
Intraday Drop of 1000 Points... Market Concerns Grow

[Asia Economy New York=Correspondent Baek Jong-min] The U.S. central bank, the Federal Reserve (Fed), made a sudden 0.5 percentage point interest rate cut, but the stock market plunged again. Although it was a preemptive decision to defend against the economic downturn caused by the novel coronavirus infection (COVID-19), it rather fueled market anxiety, and the rate cut had no effect at all.

On the 3rd (local time), the Fed sharply lowered the benchmark interest rate from 1.5-1.75% to 1.0-1.25%. Although the Federal Open Market Committee (FOMC) meeting is scheduled for the 18th, the rate was cut suddenly due to the spread of COVID-19 fears. This type of rate cut is the first since the 2008 financial crisis.

Despite the benchmark rate cut, the New York stock market fell instead. The Dow Jones Industrial Average closed at 25,917.41, down 2.94% (785.91 points), the S&P 500 index closed at 3,003.37, down 2.81% (86.86 points), and the Nasdaq index also fell 2.99% (268.08 points) to 8,684.09.

The Dow briefly rose when the rate cut decision was announced but soon turned downward. At one point during the day, it dropped nearly 1,000 points. This was the exact opposite of the situation just a day before, when the market surged 5% on expectations of a rate cut.

The rate cut only further fueled the bond rally. The 10-year U.S. Treasury yield fell to around 0.91% during the day. It was the first time in history that the 10-year U.S. Treasury yield fell below 1%. The investment formula that rate cuts encourage investment in risky assets like stocks and induce bond selling was completely broken.

On this day, with three additional deaths in Washington state, the number of COVID-19 related deaths in the U.S. rose to nine.