The Central Bank of the United States, The Federal Reserve cut interest rates on Tuesday (2/4) to counteract the impact of the coronavirus on the world's largest economy. This emergency measure failed to calm markets that were worried the economic slowdown would be deeper and last longer.

The three main Wall Street indexes closed down nearly 3%. The Dow Jones Industrial Average fell 2.94%, the S&P 500 Index 2.81%, and the Nasdaq Composite 2.99%.

A day earlier, all three of these indexes had shot up with Dow Jones posting the highest daily increase in history reaching 7%.

Fed Governor Jerome Powell explained that the spread of the coronavirus had caused a change in the prospects for economic growth and also stressed that the US economy remained strong in the face of it. The Fed decided to reduce the benchmark rate by 50 bps to between 1% and 1.25%.

"Having a coronavirus and taking steps to contain it will certainly burden the economic activity inside and outside the US for some time," Powell told a news conference, quoted by Reuters on Wednesday (3/4).

US Economy Remains Strong with Lower Interest Rates

This is the first-rate cut outside the regular meeting of the US Central Bank since the height of the 2008 financial crisis. "We are of the view that it is time to provide support to the economy. I know if the US economy is strong and I hope we can return to growth and a solid labor market," Powell said.

He also acknowledged that the economic outlook is uncertain and the situation can change. Central bank easing can drive demand because it reduces borrowing costs.

However, Powell warned that its policies could not improve disrupted global supply chains or convince people to fly, attend important meetings or even go to school, especially if local governments or companies forbid doing these activities.

"We realize that reducing interest rates will not reduce infection rates, it will not repair damaged supply chains. But this will support overall economic activity, "he explained. Not only did the stock market collapse, but the yield of the 10-year US Treasury bond also fell below 1% for the first time.

US President Donald Trump arrived at the White House when the three US markets were closed and told reporters that he had not seen market conditions and was focused on dealing with the coronavirus.

"I think they have to do more. They are hinting that they cannot do more and are very unfortunate. He gave me a very bad signal," Trump said in response to Powell's policy.

Corona Virus is Temporary, The US Economy Remains Strong

Investors believe that the Fed will not be finished with a 0.5% reduction in the benchmark rate. The market is projecting the Fed will consider cutting interest rates again in June.

Last week, Fed officials gave exposures about the temporal effects of coronavirus and remained of the view that they had experienced three times of interest rate cuts last year. To deal with weather shocks the US economy is in a good position.

"The question now is whether, how much, and when the Fed will loosen monetary policy further. If Fed officials consider the possibility of an upcoming recession to increase, they will aggressively cut interest rates," Oxford Economics Analyst Gregory Daco wrote after the conference the Powell press.

Covid-19 killed more than 3,100 people with a total of 90,000 cases. However, more than half of the total cases recover. In the United States, the coronavirus has killed 6 people with more than 1.00 infected.

US Vice President Mike Pence said President Donald Trump will visit the CDC this weekend. "We will also hold a meeting with the aviation and shipping industry," Pence said during a meeting with pharmaceutical companies in the White House.