Fed Cuts Main Interest Rate to Near Zero, Vows Massive Bond-Buying Program

The Federal Reserve swept into action on Sunday in an effort to save the U.S. economy from the fallout of the coronavirus, slashing its benchmark interest rate by a full percentage point to near zero and promising to boost its bond holdings by at least $700 billion.

Underlining the sense of urgency amid mounting recession fears, Fed Chairman Jerome Powell told a hastily assembled press briefing by telephone that the virus’s disruption to lives and businesses meant second quarter growth would probably be weak and it was hard to know how long the pain would last. That left him advocating a clear role for fiscal policy to help cushion the blow.

“The thing that fiscal policy, and really only fiscal policy can do, is reach out directly to affected industries, affected workers,” Powell said. “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.”

The Fed pulled out some of the biggest weapons in its arsenal. It’s key rate is now zero to 0.25%, matching the record low level it hit during the 2008 financial crisis and where it was held until December 2015.

The central bank also announced several other actions, including letting banks borrow from the discount window for as long as 90 days and reducing reserve requirement ratios to zero percent.

In addition, it united with five other central banks to ensure dollars are available around the world via swap lines. Powell said that he did not think negative rates, which have been used in Europe and Japan, would be appropriate policy in the U.S.

President Donald Trump, who as recently as Saturday attacked the Fed for not lowering rates faster and further, quickly expressed support for the move

“It makes me very happy and I want to congratulate the Federal Reserve,” he said. “That’s a big step and I’m very happy they did it.”

Bloomberg

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