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Essentials of Monetary Policy

Federal Reserve (Fed). Fed Cuts Key Rates in Response to Risks Associated with the Coronavirus

March 3, 2020
François Dupuis • Mathieu D’Anjou • Francis Généreux • Hendrix Vachon

For the first time since October 2008, Fed leaders have decided to change their key rates between two official monetary policy committee meetings. There is only one reason for the inter-meeting decision: the new risk associated with the COVID‑19 virus, which first emerged in China and is now spreading to more countries. The epidemic has already had a significant impact on the financial markets: at last Friday’s low, the stock market was down nearly 16% from its peak. Bond yields also followed this negative trajectory, dropping over 80 basis points from the start of 2020.