Stocks plummet after Fed zeros-out interest rates

Stocks plunged Monday morning in the wake of the Federal Reserve’s drastic Sunday action to protect the economy and stabilize financial markets upended by the coronavirus pandemic.

The Dow Jones Industrial Average sunk 2,442 points, falling more than 10 percent shortly before 10 a.m Monday. The S&P 500 fell 9.8 percent, triggering an automatic 15-minute pause in trading that occurs whenever the index falls at least 7 percent after the opening bell, and the Nasdaq composite sunk 9.6 percent.

Wall Street was expected to open Monday with steep losses after the Fed slashed interest rates to zero percent and announced it would buy at least $700 billion in bonds following an emergency Sunday meeting of the Federal Open Market Committee (FOMC), the central bank’s monetary policy arm.

Stock futures plummeted after the Fed’s announcement Sunday, pushing the S&P past its “limit down,” or the level of losses at which futures trading for the index is halted until the stock market reopens.

Monday’s sell-off and the major Fed intervention that spurred it are the latest flash of deep anxiety within financial markets as the coronavirus pandemic threatens to plunge the global economy into recession.

Public health officials have urged Americans to severely limit their time in public spaces and avoid crowds to help slow the spread of the coronavirus at the necessary cost of significant economic activity in the U.S. There are at least 3,602 confirmed cases and 66 deaths in the U.S. as of Monday morning, according to The New York Times.

Governors and mayors across the U.S. have ordered bars closed and restricted restaurants to only carry-out or delivery as the number of confirmed COVID-19 cases rises sharply. Major retail chains have also closed or restricted their hours, professional sports leagues have suspended their seasons and theaters, music venues and film festivals have also closed, canceled or postponed events because of the pandemic.

The sudden closure of much of the consumer economy is likely to take a heavy toll on U.S. growth for at least the spring, prompting the Fed to take swift action Sunday to ease the damage.

“Families, businesses, schools, organizations and governments at all levels are taking steps to protect people’s health. These measures, which are essential for containing the outbreak, will nonetheless understandably take a toll on economic activity in the near term,” Federal Reserve Chairman Jerome Powell said Monday.

Along with cutting its baseline interest rate range to zero percent, the Fed announced it would purchase at least $500 billion in Treasury bonds and $200 billion in mortgage-backed securities to stabilize financial markets.

The panic driven by the coronavirus pandemic has seized the market for Treasury bonds, which are usually traded easily among banks and brokers. The Fed’s massive impending purchases are intended to help encourage and ease trading within the Treasury bond market, allowing banks to keep extending credit to households and businesses facing financial trouble.

Updated at 9:55 a.m.