Federal Reserve Cuts Rates to Near Zero and Launches $700-Billion Quantitative-Easing Program in Response to Economic Impact of Coronavirus Scare

Stock market crash, Pixabay
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The Federal Reserve will slash interest rates to near zero and increase its holdings of US Treasury securities by at least $500-billion in addition to an increase of government mortgage-backed securities by another $200-billion. This is a new round of ‘quantitative easing’, which means creating money and pumping it into the economy by means of government spending, bank loans, and other financial injections. -GEG

Despite the boost, stock market futures on Sunday night hit “limit down” levels of 5% or lower, with Dow Jones average futures down by more than 1,000 points. -GEG

The Federal Reserve is cutting interest rates down to near-zero as the US economy absorbs a massive blow following the coronavirus pandemic, though stock futures plummeted despite the stimulus.

In a statement, the US central bank said: “The coronavirus outbreak has harmed communities and disrupted economic activity in many countries … The Federal Reserve is prepared to use its full range of tools to support the flow of credit to households and businesses.”

Among a suite of programmes to combat the economic fallout from the global threat of the Covid-19 virus, the Fed will slash interest rates and increase its holdings of US Treasury securities by at least $500bn in addition to an increase of government mortgage-backed securities by another $200bn, in the hopes of lowering the costs of longer-term debts and bolstering the struggling housing market.

That dramatic $700bn snap mirrors the Fed’s quantitative easing actions amid the financial crisis in 2008.

Despite the boost, stock market futures on Sunday night hit “limit down” levels of 5 per cent or lower, with Dow Jones average futures off by more than 1,000 points.

In a statement announcing the rate drop from one full percentage point to .25 per cent, the central bank said: “The effects of the coronavirus will weigh on economic activity in the near term and pose risks to the economic outlook. … 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 labour market conditions, and inflation returning to the Committee’s symmetric 2 per cent objective.”

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