Fed Slashes Interest Rates To Near Zero

interest rates, federal reserve, cut, coronavirus

The Federal Reserve announced Sunday (March 15) it would drop benchmark interest rates to zero and buy at least $700 billion in government bonds as part of an emergency action to protect the economy from the impact of the coronavirus outbreak.

“The coronavirus outbreak has harmed communities and disrupted economic activity in many countries, including the United States,” the Fed said in a statement.

“The Committee expects to maintain this target range until it is confident that the economy has weathered recent events and is on track to achieve its maximum employment and price stability goals,” it added.

The Fed cut rates by half a percentage point on March 3, the first emergency rate cut since the financial crisis.

As a way to maintain normalcy within the financial markets, the Fed made a deal with the Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank and the Swiss National Bank to drop their rates on currency swaps, CNBC reported.

The new rate will now be targeted at 0.0 percent to 0.25 percent, down from a target range of 1 percent to 1.25 percent.

“The Federal Reserve is prepared to use its full range of tools to support the flow of credit to households and businesses and thereby promote its maximum employment and price stability goals,” according to the statement. “... The Committee will continue to closely monitor market conditions and is prepared to adjust its plans as appropriate.”

The only lone dissenter in lowering the rate was Cleveland Fed President Loretta Mester. She was in favor of a more conservative reduction to rates of 0.5 percent to 0.75 percent.

The Fed’s decision follows Wall Street disruptions with the Dow seeing its biggest one-day points drop amid closing businesses and schools, and canceled sporting events and large gatherings.

As another way of helping with the financial fallout from COVID-19, the disease caused by the coronavirus, banking regulators wrote a joint statement telling banks they wouldn’t be penalized for helping affected borrowers.



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