Coronavirus: Federal Reserve slashes interest rates to near zero; Trump hails 'really good news for the country'
The central bank cut the rates to near zero saying the effects of the deadly virus pose a risk to the economic outlook and will maintain it till the market regains confidence
In the face of the rising coronavirus threat, the US Federal Reserve on Sunday, March 15, slashed interest rates yet again. It was the second time in less than two weeks that the agency took the step to help secure the US economy amid the fast-spreading pandemic. Over 3,000 cases of coronavirus have been confirmed in the US with the death toll approaching 70.
In a statement, the central bank said it was cutting the rates to a target range of zero to 0.25 percent. “The effects of the coronavirus will weigh on economic activity in the near term and poses risks to the economic outlook. In light of these developments, the committee decided to lower the target range,” the Fed’s statement read.
“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.
Trump welcomes Fed's decision
The bank’s policymakers, led by Chair Jerome Powell, will not be holding their next meeting over setting the interest rate till Wednesday, March 18, and Thursday, March 19.
Meanwhile, President Donald Trump welcomed the decision at a press meeting on Sunday, calling it “really good news for the country”.
The US was witnessing a steady shutting down with the forecasts over its economic functioning not sounding too optimistic. The authorities were trying to keep the spirits high. Treasury Secretary Steven Mnuchin said both the Fed and federal government were equipped to support the economy. He also ruled out the prospect of the economy going into a recession.
“I don't think so,” Mnuchin said when asked if America is facing a recession. “The real issue is what economic tools are we going to use to make sure we get through this.”
Mnuchin’s thoughts found little support from economists, however, as they believed that a recession is already here or is waiting to happen soon.
According to a report in Associated Press, the Fed will buy Treasury Securities worth at least $500 billion and mortgage-backed securities worth at least $200 billion.
The report said that the Fed’s massive emergency step was intended at easing market disruptions that have made it difficult for banks and big investors to sell treasuries and to keep longer-term borrowing rates down. The Fed has aimed at keeping the lending flow to businesses and consumers smooth so that the small businesses that are seeing dry times do not face damages that can damage the financial security of several people.
“This is a break-the-glass moment” for the Fed, Mark Zandi, chief economist at Moody’s Analytics, was quoted as saying by the AP. “They are throwing everything they’ve got at this. My sense is they must be nervous about the credit system not functioning properly. They are trying to shore up confidence,” he added.
Meanwhile, JP Morgan Chase predicted the US economy will shrink two percent in the current quarter and three percent in the next.
The Fed cut interest rates by half a percentage point on March 3 at an emergency meeting - the first rate cut outside of a regularly scheduled policy meeting since the crisis of 2008.
The central bank also said it has dropped its requirements that banks hold cash reserves in order to encourage lending. It also said that it has cut interest rates on dollar loans in a joint action that it has taken with five central banks overseas. The aim is to ensure foreign banks have access to dollars that they lend to companies overseas.