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Fed Responds to Coronavirus Outbreak With Big Rate Cut

The benchmark interest rate is reduced to nearly zero
By Newser Editors and Wire Services
Posted Mar 15, 2020 4:22 PM CDT

(Newser) – The Federal Reserve took emergency action Sunday and slashed its benchmark interest rate by a full percentage point to nearly zero and announced it would purchase more Treasury securities to encourage lending to try to offset the impact of the coronavirus outbreak, the AP reports. The central bank said the effects of the outbreak will weigh on economic activity in the near term and pose risks to the economic outlook. The central bank said it will keep rates at nearly zero until it feels confident the economy has weathered recent events. The Fed also said it will purchase $500 billion of Treasury securities and $200 billion of mortgage-backed securities to smooth over market disruptions that have made it hard for banks and large investors to sell Treasuries.

The disruptions bumped up the yield on the 10-year Treasury last week, an unusual move that threatens to push borrowing costs for mortgages and credit cards higher. The Fed also said it has dropped its requirements that banks hold cash reserves in another move to encourage lending. The Fed also announced that it has cut interest rates on dollar loans in a joint action that it has taken with five central banks overseas. That is intended to ensure that foreign banks continue to have access to dollars that they lend to overseas companies. All told, the Fed's actions amount to a recognition that the US economy faces its most perilous juncture since the recession ended more than a decade ago.
(Read more coronavirus stories.)

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