Fed Cuts Rates Close to Zero Response to Covid-19 Crisis

March 16, 2020

Source: The Street

The target range for the federal funds rate was slashed to nearly zero and the Federal Reserve vowed to purchase $700 billion total in Treasury and mortgage-backed securities.

The Federal Reserve slashed its policy rate by a full percentage point, lowering its target range for the federal funds rate to 0 to 0.25%.

"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," said the Federal Reserve in a statement on Sunday

It said the action - in response to the hit to the economy from the Covid-19 coronavirus crisis -- would help support economic activity and strong labor market conditions.

By Sunday afternoon, more than 60 people across the country had died from Covid-19, and known infections climbed toward 3,300 - with nearly 730 in New York alone. Worldwide, nearly 160,000 were believed to have been infected by the virus, with about half of those in China. Companies such as Nike (NKE) - Get Report and Apple (AAPL) - Get Report announced store closings.

"The coronavirus outbreak has harmed communities and disrupted economic activity in many countries, including the United States," the Fed said. "Global financial conditions have also been significantly affected."

The Fed also said it would make $700 billion in total asset buys, and other offerings such as credit for commercial banks for lending.

While the Federal Reserve said that the U.S. came into crisis "on a strong footing," it's clear that companies and workers are bracing themselves as much of the nation is canceling events, closing stores, and asking everyone to stay home as much as possible.

"The effects of the coronavirus will weigh on economic activity in the near term and pose risks to the economic outlook," said the Fed, adding that the committee will continue to monitor the economic outlook, the affects of the spread of Covid-19, and global developments.

"To support the smooth functioning of markets for Treasury securities and agency mortgage-backed securities that are central to the flow of credit to households and businesses, over coming months the Committee will increase its holdings of Treasury securities by at least $500 billion and its holdings of agency mortgage-backed securities by at least $200 billion," added the Fed. "The Committee will also reinvest all principal payments from the Federal Reserve's holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities. In addition, the Open Market Desk has recently expanded its overnight and term repurchase agreement operations. The Committee will continue to closely monitor market conditions and is prepared to adjust its plans as appropriate."



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