by Nathan McDonald, Sprott Money:

The Federal Reserve has cast caution to the wind, shattering their previous projection of “no expected rate cuts in 2020” with nearly ten months remaining in the year.

This quick change in course occurred on Tuesday, as the Federal Reserve, led by Chairman Jerome Powell, held an unexpected emergency meeting in which they slashed rates by 50 basis points, making the new effective Fed funds rate 1.0 – 1.25%.

What is most shocking in this unexpected move was that it occurred just weeks before an already scheduled, planned Fed meeting set to take place on March 17th-18th in Washington.

This means the Federal Reserve felt that this emergency rate cut was needed right now and they could not wait a mere twelve days! Think about that for a moment.

The Federal Reserve, along with other Central Bankers around the world and so many others, has been completely caught off guard by the rapid spread of the coronavirus.

New cases appear on a daily basis, with some countries such as the United States taking emergency action, hoping to contain the virus before it is too late.

President Trump, in typical fashion, took to Twitter to berate the Federal Reserve and push for a further slashing of rates.

I personally believe that he will get his wish, as the Federal Reserve knows now the economic damage that will erupt due to the spread of the coronavirus, as supply chains around the world begin to feel massive disruptions in the months ahead.

In addition to this, sectors of the economy such as those related to hospitality, travel, and leisure are going to be crushed if this virus is not contained soon. Many people are going to simply put off unnecessary travel and expenses, creating a spiraling, self-fulfilling prophecy that will result in a major economic recession.

The Federal Reserve in this case is going to have no choice but to slash rates over and over again, moving into negative interest rate territory like the European Union and Japan.

Unfortunately for those countries, they have no room to move lower, as their rates are already in uncharted territory.

However, other Central Banks around the world will follow suit, joining the Federal Reserve in their crusade for lower and lower interest rates, attempting to prop up their economies.

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