Economy gets a dose of coronavirus, Fed cuts benchmark rate

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AMHERST, N.Y. (WIVB)–The international threat of the coronavirus has become a drag on the U.S. economy, and Tuesday, the Federal Reserve responded with an emergency cut of their benchmark interest rate by a half percent.

That sent Wall Street, known to love low interest rates, on a wild rollercoaster ride over the next 24 hours— stocks went up, then they tanked, but by the time the market closed Wednesday, the Dow Jones Industrials jumped by nearly 1,200 points.

How effective was the Fed’s move? Steven Elwell, the Chief Financial Officer for Level Financial Advisors, told us the Federal Reserve sent a scare through the markets initially when they cut the interest rate by a half percent in an emergency meeting.

“If they had just held off until their meeting in March.”  Elwell said the conventional wisdom in the financial sector was a quarter point cut.

“It was widely expected they were going to cut rates in March anyway at their meeting. So to do it two weeks early on a random day maybe stirred the pot a little more than they were trying to do.”

Because of the interruptions in manufacturing and supply lines coming out of China–the epicenter of the coronavirus epidemic–the economy is slowing down: store shelves are getting thin, and people are not moving around as much.

Elwell said the rate cut would have the biggest impact on those who hold stocks, treasury notes, and outstanding loans.

“Lowering interest rates usually is a way to stimulate the consumer to go spend more money, whether that is lower interest rates on cars, or houses, or credit cards, or any other debt.”

But Anthony Ogorek, president of Ogorek Wealth Management says the Fed’s benchmark interest rate is barely above zero, so the Fed does not have much more room to cut, “They are about out of bullets at this point.”

So Ogorek says the government might need to step in, and encourage banks and other financial institutions to offer forebearance for borrowers.

“For mortgages, for student loans, for auto loans, for people who are going to be caught in the crossfire of this, because they did not do anything wrong.”

But there was more to the big jump on Wall Street than the interest rate cut:  A jobs report came out better than expected, and the outcome of “Super Tuesday” led many investors to believe they might be dealing with a more business-friendly presidential candidate.

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