Fed cuts interest rate amid coronavirus fears; hotel stocks sink

The move follows a week in which the stock market plunged, with hospitality and mall stocks slammed

Jerome Powell (Credit: Chip Somodevilla/Getty Images and iStock)
Jerome Powell (Credit: Chip Somodevilla/Getty Images and iStock)

UPDATED, 4:13 p.m., March 3: The Federal Reserve announced an emergency rate cut on Tuesday morning, a direct response to growing fears over the economic fallout of the coronavirus, which has already slammed real estate stocks and hit the hospitality industry particularly hard. Stocks began stabilizing Monday on word that the Fed could cut the benchmark rate, but fell Tuesday following the announcement. The Dow dropped nearly 800 points on the day, with Hilton, Marriott, Hyatt and Wyndham stocks all down at the close of day.

The Fed cut the rate by half a percentage point, noting while the U.S. economy remains strong, “the coronavirus poses evolving risks to economic activity.” The cut will reduce rates to 1.0-1.25 percent. The vote was a highly unusual one; it is the first one to take place between a scheduled policy meeting since 2008, according to the Wall Street Journal. The vote was unanimous. The next scheduled meeting of the board is for March 17-18.

“The committee is closely monitoring developments and their implications for the economic outlook and will use its tools and act as appropriate to support the economy,” according to a Federal Reserve statement that accompanied the announcement.

The Fed is hoping the rate cut will boost consumer confidence after U.S. stocks plummeted last week, posting their worst losses since the financial crisis over a decade ago. The most recent rate cut was in October.

The virus, which started in China late last year, has so far infected nearly 90,000 people across more than 65 countries, and has led to over 3,000 deaths, according to the New York Times.

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Real estate companies have not been immune to the effects of the coronavirus. Last week, a measure of real estate stocks called the SNL U.S. REIT Equity index fell about 12.3 percent, according to S&P.

Hotels have been slammed as travel restrictions across the country and around the world have led to massive cancelations. Hotel REIT prices fell 18.4 percent this week, according to S&P. Retail malls could also be hurt, experts say, as consumers stay home or avoid gathering in large public spaces.

In an earnings call last month, David Simon, CEO of mall owner Simon Property Group, noted the company’s revenues could be affected in the short-term from a drop in tourism related to the outbreak.

This article includes an update after the close of the trading day.