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Fed Slashes Rates to Near-Zero and Unveils Sweeping Program to Aid Economy Fed Slashes Rates to Near-Zero and Unveils Sweeping Program to Aid Economy
(32 minutes later)
WASHINGTON — The Federal Reserve slashed interest rates to near-zero and unveiled a sweeping set of programs — including plans to snap up huge amounts of government and mortgage-backed debt — in an effort backstop the United States economy as the spread of coronavirus poses a dire threat to economic growth. WASHINGTON — With the fast-spreading coronavirus posing a dire threat to economic growth, the Federal Reserve on Sunday night took the dramatic step of slashing interest rates to near-zero and unveiled a sweeping set of programs in an effort to backstop the United States economy.
In addition to cutting its benchmark interest rate by a full percentage point, returning it to a range of 0 to 0.25 percent, the Fed said it would snap up huge amounts of government and mortgage-backed debt. The central bank said it planned to increase its holdings of Treasury securities by at least $500 billion and its holdings of government mortgage-backed securities by at least $200 billion “over coming months.”
The remarkable Sunday afternoon action — reminiscent of the global financial crisis a dozen years ago — reflected the imminent peril facing the economy from a virus that has shuttered factories, quarantined workers and made a recession look increasingly likely. To try to contain the damage, the U.S. central bank engaged a significant amount of its firepower, deploying multiple tools across several areas of policy.
As workers are forced to stay home, restaurant and movie traffic slows and entire cities grind to a halt, the economy is certain to endure short-term pain. Officials are trying to prevent those near-term disruptions from forcing businesses to default on loans or close permanently, inflicting long-term damage. They are also working to make sure that the inner workings of financial markets function smoothly at a time of intense volatility.
“The coronavirus outbreak has harmed communities and disrupted economic activity in many countries, including the United States,” the central bank said in a statement on Sunday. “The Federal Reserve is prepared to use its full range of tools to support the flow of credit to households and businesses.”“The coronavirus outbreak has harmed communities and disrupted economic activity in many countries, including the United States,” the central bank said in a statement on Sunday. “The Federal Reserve is prepared to use its full range of tools to support the flow of credit to households and businesses.”
Besides cutting its key interest rate by a full percentage point, returning it to a range of 0 to 0.25 percent, the Fed said that it would increase its holdings of Treasury securities by at least $500 billion and its holdings of government mortgage-backed securities by at least $200 billion “over coming months.” “The committee will continue to closely monitor market conditions and is prepared to adjust its plans as appropriate,” it added.
“The committee will continue to closely monitor market conditions and is prepared to adjust its plans as appropriate,” it said. President Trump praised the Fed’s action. “I want to congratulate the Federal Reserve,” he said on Sunday night. “People in the market should be very thrilled.” Mr. Trump added, “We got it down to potentially zero.”
The Fed also encouraged banks to use its discount window, which provides ready access to financing, and said it was “encouraging banks to use their capital and liquidity buffers as they lend to households and businesses.” The Fed also eliminated bank reserve requirements — a suite of efforts meant to free up cash for the banks to keep lending. The move was not unanimous. Loretta Mester, president of the Federal Reserve Bank of Cleveland, voted against it, preferring to lower interest rates by only half a percentage point.
This is a developing story. Check back for updates. The Fed encouraged banks to use its discount window, which provides ready access to financing, and said it was “encouraging banks to use their capital and liquidity buffers as they lend to households and businesses.” The Fed also eliminated bank reserve requirements — which mandate that banks stash a certain amount of cash at the central bank — a suite of efforts meant to free up cash for the banks to keep lending.
The central bank also announced that the Fed, along with the Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank and the Swiss National Bank would lower the pricing on the standing U.S. dollar liquidity swap arrangements and take other measures to encourage their use and effectiveness — an effort to keep dollar funding flowing globally.
The Fed has a history of using “swap lines” to help foreign central banks deliver U.S. dollar funding to financial institutions in their regions amid market stress. Such agreements were used extensively during the financial crisis.
The Fed’s new bond-buying program is slightly larger than the one announced in November 2008 — the first step into what would become the first round of the central bank’s crisis-era effort known as quantitative easing. That program ultimately pumped trillions of dollars into the economy in an attempt to lower longer-term interest rates and reinvigorate growth during the recession.
Chair Jerome H. Powell and his Fed colleagues have been the first line of defense against the economic fallout from coronavirus. They slashed interest rates by half a percentage point at an emergency meeting on March 3, and have rolled out a number of initiatives to keep markets flush with cash and chugging along.