Cutting to the Bone

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February saw the COVID-19 epidemic progress into a global pandemic that now touches every continent except Antarctica. The virus is expected to take a toll on growth not only in Asia, but also in developed markets in Europe and North America. Equities dropped steeply in response to this grim outlook, with the S&P 500 down nearly 16% at the extremes. In response, the Federal Reserve stepped in on March 3 with an unscheduled cut of 50 bps to the overnight federal funds rate (known as an “intermeeting cut” because it occurred between scheduled Fed meetings). Markets rallied briefly on this news before moving on quickly to continue their journey downwards. Lower interest rates may help corporate investment, but they will not get consumers back out to the movies or onto cruise ships.

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