The Fed cut short-term rates to zero, renewed bond purchases to lower long-term rates and encouraged bank loans to combat the coronavirus's impact.
The Federal Reserve unleashed much of its arsenal Sunday to combat the economic damage caused by the coronavirus, cutting short-term interest rates to zero, renewing its crisis-era bond purchases to lower long-term rates and encouraging more bank loans to households and businesses.Central bank policymakers agreed to lower the Fed’s benchmark federal funds rate by a full percentage point to a range of zero to 0.25% -- where it hovered for years during and after the 2008 financial crisis.
The central bank is also renewing its bond buying campaign, saying it will purchase $500 billion in Treasury bonds and $200 billion in mortgage-backed securities to lower rates for mortgages and other consumer and business loans. The Fed said it will reinvest those proceeds instead of letting them roll off its books.
"Great news, but not enough on its own," economist Ian Shepherdson of Pantheon Macroeconomics wrote of the rate cit and bond purchases in a note to clients. He said Congress needs to do more than the package the House passed late Friday to help Americans whose health and jobs have been affected. It’s also encouraging banks to use the their more than $4 trillion in post-crisis capital cushions to lend money to households and businesses. Those buffers have been designed to guard against another financial crisis.
Trump has been critical of the Fed and Chairman Jerome Powell, whom he appointed to the chairmanship in 2017. Trump has argued that interest rate hikes have slowed economic growth.
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