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home : opinion : opinion July 14, 2020

3/4/2020 6:53:00 AM
Fed Cuts Interest Rates As Coronavirus & Fears Spread
CLICK HERE to read the
World Health Organization's
report on COVID-19.


Wayne Howard
Staff Writer


It may be a signal of things to come; certainly the stock market seemed to express that opinion. The Federal Reserve slashed interest rates Tuesday, trimming the federal funds rate by 0.50 percent to a range of 1-1.25 percent. The Fed is trying to stay ahead of disruptions and the economic slowdown caused by the rapidly spreading coronavirus.

Lower interest rates are generally a positive for the stock market. Lower rates make it easier for businesses to borrow and invest in their operations, so companies can expand their profits at a lower cost. Lower rates also make stocks look like a better option for investors because rates on savings accounts and CDs fall, so stock prices tend to rise when rates are cut.



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The stock market tends to price in the potential for a rate cut--sometimes weeks or months before it actually takes place. In this case, the market gained almost five percent--its biggest gain day in history--on Monday, the day before the Fed cut the interest rate; but fears related to the coronavirus and other factors reversed the Monday gains on Tuesday. The Dow Jones Industrial average tumbled--at one point, the index was down by 997 points. It finished down 786 points, or 2.9%.

By the way, oil prices, which had been sliding downward because of the coronavirus and its crippling effect on the world economy--especially China--rallied Monday & Tuesday. If you like that less than $2 a gallon gas price you'll find in some locations, better fill 'er up right away. With Oil prices back on the increase, gas prices will no doubt follow. The reason for the increases Monday & Tuesday was lower than expected builds of inventory.

The lower interest rate will be good for anyone looking to buy a home. Mortgage rates will decline--slightly, but then if you get a fixed long-term rate, that could really add up over the years. Other rates--like variable rates on credit cards and car loan rates--will also decline, but those are generally short-term and won't amount to much in savings.

How bad is the coronavirus? 15 states, including North Carolina, have now reported confirmed cases. The disease is certainly a lot worse than a common cold--which is what one radio talk show host called it. China reported terrible death rates among those in the city where it was first discovered; but nationwide, the Chinese now say the death rate is 0.4 to 0.7 percent. That's still about four to seven times greater than the death rate for seasonal flu, which is about 0.1 percent – or 1 in 1,000 patients.

While there's no vaccine against this new coronavirus (the new one is known as COVID-19; it comes from a family of viruses that also include the common cold), treatments have improved thanks largely to the Chinese. When they found the death rate was very high and confirmed that they were dealing with a serious threat, they instituted quarantines to slow the spread of the disease. As more patients were treated, they learned what works and what doesn't in treatment--knowledge that may help other countries in combatting the disease. Most of the deaths from the disease have been in the elderly; the death rate is much, much higher in those over age 70, especially those who already have other health problems. China's CDC says that for coronavirus patients aged 70 to 79 the death rate more than triples. For those older than 80 it's more than six times as high.

Those facial masks may or may not help you to avoid getting COVID-19. The World Health Organization says "Airborne spread has not been reported for COVID-19 and it is not believed to be a major driver of transmission." Washing your hands thoroughly and often, avoiding touching your face, especially the mouth and eyes, is important because the spread of the virus is largely thought to have been spread by contact. If you get sick, chances are you have a cold or the flu and not the virus--but avoid spreading any disease by staying at home instead of going to school or work when you'e sick. Testing for the coronavirus isn't yet readily available in the US and is mostly being done on patients who require hospitalization or who have other risk factors (like having traveled to a location where the virus is known to have been confirmed).

Even some very knowledgeable people have been stocking up on food and other supplies fearing an economic collapse that could create serious shortages. It's true that some items are already in short supply at some locations across the country and products including parts used for manufacturing in the US that come from China are becoming unavailable. The effect on our economy has been worse in some locations--like Long Beach, California, where over half of the dock workers have been laid off because products from China aren't coming in. This is NOT the Great Depression and hopefully won't become anything close, although this reporter has been predicting for over two years now an economic downtown this Summer that would be felt much more next year. It's not a political statement: the US will likely fare better than most of the rest of the world and it has little to do with who's in the White House. Other factors have been developing that signaled a downturn and the coronavirus situation hastened (and worsened) the effects so far.

Buying lots of non-perishable grocery items, etc. now is a little like stocking your fallout shelter in the 1950s and 1960s. It's unlikely that you'll need it.


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