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When the Fed makes an emergency move, it’s usually an emergency

Federal Reserve Chair Jerome H. Powell at the end of news conference on March 3. (Jacquelyn Martin/AP)

Central bankers go to great lengths to avoid spooking markets. They fuss over every word in an effort to measure expectations so consumers and investors know what to expect.

So the Federal Reserve’s surprise decision on Tuesday to slash interest rates by 0.5 points has startled even the most informed spectators. It’s the biggest one-day move since 2008, and it comes on a day when the Fed wasn’t even supposed to meet. In a normal economy, the Fed waits until its regular gatherings to unveil carefully choreographed rate moves.

The central bank’s benchmark federal funds rate now sits in a range between 1.0 and 1.25 percent, a remarkably low level for a strong economy. The economy’s actual strength is now a big focus of debate.

Fed Chair Jerome H. Powell’s bold response to the rapid spread of coronavirus is precedented. As Kathy Lien of BK Asset Management pointed out on Twitter, his predecessors made similar moves in response to the global financial crisis, the Sept. 11 terrorist attacks on the United States and the bursting of the tech-stock bubble.

Below, we look at some of the millennium’s most notable unscheduled rate cuts.

The Great Recession

Jan. 22, 2008: 0.75 points

A week ahead of their regularly scheduled meeting, Ben S. Bernanke announced the Fed’s deepest rate cut in 24 years, which The Washington Post at the time described as “a bold action designed to prevent steep losses in world stock markets from causing an all-out panic."

We didn’t really know it yet, but the Great Recession was already underway. The official arbiters of when recessions begin and end, the business cycle dating committee at the National Bureau of Economic Research (NBER), would later determine that the previous expansion had peaked in December 2007.

Oct. 8, 2008: 0.5 points

In a dramatic effort to contain the spiraling global financial crisis, the Fed worked with about 20 other central banks worldwide to slash interest rates. Even China joined in.

The 2008 cut, from 1.5 percent to 1.0 percent, was similar in both level and magnitude to today’s Fed action. It came at the depths of the Great Recession as Bernanke struggled to contain the market chaos that followed the implosion of Lehman Brothers a few weeks earlier.

The 2001 Recession

April 18, 2001: 0.5 points

A year after the Nasdaq peaked and the dot-com bubble burst, it seemed as if the long expansion of the 1990s was slowly unraveling. As business investment and corporate profits lagged behind, Fed Chair Alan Greenspan sprang into action.

“A surprise half-percentage-point interest rate cut by the Federal Reserve today set off a roar on the floor of the New York Stock Exchange and triggered a buying frenzy,” The Post reported at the time.

By the end of that year, NBER would determine March was the turning point, and the economy was in a recession by April. You wouldn’t know it from the restrained tones of contemporary news coverage.

Sept. 17, 2001: 0.5 points

The Fed cut rates just before markets reopened in the wake of the Sept. 11 terrorist attacks, in what The Post at the time called “an effort to bolster investor confidence.”

“Many economists and policymakers are concerned that last week’s terrorist attacks may have seriously damaged both investor and consumer confidence,” The Post reported. “Should stock prices remain depressed, or fall much further than they did yesterday, confidence could worsen and easily plunge the already weak U.S. economy into a recession, analysts said.”

As you know by now, NBER would later determine the economy was already in recession in September. It hit bottom a month later, after which the expansion of the 2000s would begin.

Heather Long contributed to this report.

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