STEVE INSKEEP, HOST:
We now survey the way the coronavirus pandemic is changing our lives daily - or even hourly. School closings that were scattered and brief a few days ago are now widespread and growing longer. Several states have ordered the closing of bars and restaurants. New York's governor now wants casinos and gyms to close at 8 o'clock tonight. Steps that seemed extreme the other day now seem normal.
And each change has an effect on the economy. This morning, we saw stock markets react dramatically once again. They plunged early today, despite - or maybe because of - Federal Reserve efforts to stanch the bleeding.
NPR chief economics correspondent Scott Horsley is on the line. Scott, good morning.
SCOTT HORSLEY, BYLINE: Good morning, Steve.
INSKEEP: Yesterday, the Fed slashed interest rates to near zero. How have the markets responded today?
HORSLEY: Not positively. There was a steep sell-off right from the opening bell this morning. In fact, almost instantly, the S&P 500 slid more than 7%. So once again, we saw that circuit breaker triggered. Trading was halted for about 15 minutes to give investors a chance to catch their breath. When trading resumed, the stocks continued to slide. At one point, the S&P and the Dow were both down about 10%. They have since regained some ground. The S&P is now down a little over 7%, and the Dow is down about 8%.
INSKEEP: Why did the Fed choose to slash rates in an emergency move on a Sunday?
HORSLEY: The very severe measures that are being recommended and, in some cases, ordered now by public health officials in order to address the coronavirus are taking a real toll on the economy. However necessary those measures may be from a public health standpoint, they are costly in economic terms. We got an inkling of that last week, when we saw the major sporting leagues and entertainment venues closing their doors. Now it's filtering down to just mom-and-pop restaurants on the corner and small businesses. Millions of workers are hunkering down in their homes. And as a result of all that, we're going to see a sharp contraction in the economy in the months to come.
The question that everybody has is, how long is this going to last? And the Federal Reserve chairman, Jerome Powell, is unable to answer that. He says, you know, it just - it depends on the spread of the virus. In a conference call with reporters, he did try to offer some reassurance, though.
(SOUNDBITE OF PRESS CONFERENCE)
JEROME POWELL: We do know that the virus will run its course and that the U.S. economy will resume a normal level of activity. In the meantime, the Fed will continue to use our tools to support the flow of credit to households and businesses.
HORSLEY: In this case, though, Steve, the Fed's action, which was designed to be reassuring, may have simply underscored, for a lot of investors, how severe the hit to the economy's going to be.
INSKEEP: I want to think about the way that people may perceive this action because the chief tool the Fed has is interest rates. If they lower interest rates to near zero, it would appear to say that they're out of bullets at that point. Maybe that's why some people were concerned. But is that true, Scott Horsley? Do they have other things still that they can do?
HORSLEY: They have other tools. But certainly, their interest rate monetary policy is the biggest weapon in their arsenal. And it's a weapon that's, frankly, not particularly well suited to the situation we find ourselves in right now. If people are hunkered down at home, if shops and restaurants are shuttered, then cutting interest rates isn't going to make much difference. It's not going to help a whole lot.
What the Fed is really trying to do, though, is keep credit markets from seizing up because that would make the situation even worse. In addition to cutting their marquee interest rate, the Fed is also pumping hundreds of billions of dollars into the banking system to keep the credit market functioning.
That said, though, Jerome Powell says, we're going to use our tools; other parts of government have to do what they can. First responsibility, of course, is for the public health officials to attack the virus directly and try to keep people safe and healthy. And then there's a role for Congress and the administration, as well, to cushion the economic blow.
INSKEEP: Scott, thanks for the update.
HORSLEY: You're welcome.
INSKEEP: NPR chief economics correspondent Scott Horsley has been with us throughout this day. Transcript provided by NPR, Copyright NPR.