Shares tank after shock US rate cut: Dow falls 786 points

Shares on Wall Street tumbled last night after the first emergency interest rate cut in the United States since the financial crisis spooked investors worried about the coronavirus.

The Dow Jones Industrial Average fell nearly 1,000 points before finally closing down 786 points, or 2.94 per cent, amid escalating fears over the impact of the deadly epidemic on the global economy.

The latest sell-off came after the Federal Reserve cut rates from between 1.5 per cent and 1.75 per cent to a range of 1 per cent to 1.25 per cent.

Fed chairman Jay Powell, who has been criticised by President Donald Trump for setting rates too high, said the virus ‘poses evolving risks to economic activity’. 

The Dow rose more than 300 points in the immediate aftermath of the rate cut as investors welcomed the bold move.

But shares then slammed into reverse amid fears that there was little authorities can do to shield economies.

George Lagarias, chief economist at Mazars, said: ‘This is one of the very few times in recent financial history that the Fed fires its bazooka, and nothing happens. Markets did not follow the move with an exuberant rally.

‘Rate cuts don’t stop viruses or mitigate demand and supply damage from people not being able to leave their homes.’

With stock markets tanking, Trump demanded more rate cuts. He said on Twitter: ‘The Federal Reserve is cutting but must further ease and, most importantly, come into line with other countries/competitors. 

We are not playing on a level field. Not fair to USA. It is finally time for the Federal Reserve to LEAD. More easing and cutting!’ 

The Australian central bank also cut rates, to a record low of 0.5 per cent, and pledged to take further action if necessary. 

Other central banks are ready to act, including the Bank of England, European Central Bank and Bank of Japan.

It is feared the outbreak, which started in China but has spread round the world, disrupting air travel and hampering business, could tip countries into recession. Chancellor Rishi Sunak is expected to use next week’s Budget to support the economy.

And Bank of England Governor Mark Carney yesterday said the authorities stood ready to protect small firms. 

‘We don’t want viable businesses to go out of business because of the very necessary steps that need to be taken to protect and serve the British public over the course of the near future,’ he said.

The International Monetary Fund and World Bank last night said they will adopt a ‘virtual format’ for next month’s spring meetings instead of convening some 10,000 government officials, business leaders and other delegates in Washington.

The World Bank also revealed that it would make an emergency funding package worth £9.2billion available to developing countries which are struggling to cope with the Covid-19 outbreak.

Finance ministers and central bankers from the G7 nations of the US, Canada, UK, Japan, Germany, France and Italy also held a conference call yesterday to discuss the epidemic. 

Following the call, they said: ‘Given the potential impacts of Covid-19, we reaffirm our commitment to use all appropriate policy tools to achieve strong, sustainable growth and safeguard against downside risks.

‘Alongside strengthening efforts to expand health services, G7 finance ministers are ready to take actions, including fiscal measures where appropriate, to aid in the response to the virus and support the economy.

‘G7 central banks will continue to fulfil their mandates, thus supporting price stability and economic growth while maintaining the resilience of the financial system.’