Spot analysis

Fed cuts key interest rate by 50 basis points

Dr Thomas Gitzel, Chief Economist VP Bank Group
Reading time: 1 Min
The US Federal Reserve lowers the target range for the key interest rate by 50 basis points.

The interest rate cut must be seen as an "influenza vaccination". The Fed intervenes before the financial markets and the US economy suffer any major damage. This is evidence of a vigorous approach to soften a possibly severe economic loss. Further rate cuts could follow.

The other central banks will also make themselves heard. The European Central Bank (ECB) is also in the starting blocks. In our view, an early reduction of the deposit rate by 10 basis points is on the agenda. A clear signal would also be an early increase in the issuer limit from 33% to 40% for government bond purchases. According to its statutes, the ECB is currently only allowed to hold 33% of a member state's bonds. The limit for German Bunds is almost reached. A change would pave the way for further high-volume bond purchases.

Today’s action shows that central banks and governments are prepared to act in response to the threat of the new coronavirus. A good thing.

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