Federal Reserve Announces Major Interest Rate Reduction as a Result of the Wuhan Coronavirus

|
 @eb454
|
Posted: Mar 15, 2020 5:32 PM
Federal Reserve Announces Major Interest Rate Reduction as a Result of the Wuhan Coronavirus

Source: AP Photo/Tony Dejak

During a press conference on Sunday, President Donald Trump announced that the Federal Reserve is taking drastic action to cushion the economy from the Wuhan coronavirus outbreak that has become a pandemic. According to Trump, the Federal Reserve will drop the interest rate to near zero. 

"The effects of the coronavirus will weigh on economic activity in the near term and pose risks to the economic outlook. In light of these developments, the Committee decided to lower the target range for the federal funds rate to 0 to 1/4 percent," the Federal Open Market Committee 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. This action will help support economic activity, strong labor market conditions, and inflation returning to the Committee's symmetric 2 percent objective."

From the Wall Street Journal:

The Fed will buy at least $500 billion in Treasury securities and $200 billion in mortgage-backed securities over the coming months to help unclog markets that grew dysfunctional last week, the central bank said. It said it would initiate the program, called quantitative easing, on Monday.

The Fed said it was activating swap lines with five other central banks, including the European Central Bank and the Bank of England, to smooth out disruptions in overseas dollar-funding markets, effectively encouraging foreign central banks to use existing facilities to supply dollars to their own financial systems.

The central bank also announced a series of steps to boost lending, including by lowering the rate charged to banks for short-term emergency loans from its discount window to 0.25% from 1.75%. It said it would encourage banks to tap their capital and liquidity buffers to lend to households and businesses affected by the coronavirus.