Fed slashes rates to near zero in emergency move, but stocks plunge as pandemic fears spread

The Federal Reserve cut its benchmark rate by a full percentage point to a range of zero to 0.25 percent in an emergency announcement on Sunday, its second unscheduled cut this month. It also said it would buy at least 700 billion dollars of Treasuries and mortgage-backed securities.

The move did not calm markets. When trading opened on Monday, US stocks fell so quickly that exchanges triggered a trading halt within minutes. The Dow Jones Industrial Average closed down nearly 3,000 points, its largest point drop on record.

The trigger is the spread of the coronavirus and the steps governments are taking to contain it. Schools, offices and shops are closing across the US and Europe, and economists expect a sharp contraction in activity.

Central banks around the world have acted in parallel, with coordinated steps to ease access to dollar funding through swap lines. Several parts of the market are showing stress:

• Treasury bonds, normally a safe haven, have seen unusual volatility
• Corporate bond spreads have widened quickly
• Oil prices are falling amid a price dispute among producers

Policymakers are signalling that more support is coming, including fiscal measures from Congress. For now, the message from markets is that interest rate cuts alone cannot offset an economy that is being shut down.