The Fed just slashed short-term interest rates to zero.
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 pump cash into the financial system and encouraging more bank loans to households and businesses.
“The coronavirus outbreak has harmed communities and disrupted economic activity in many countries, including the United States,” the Fed said in a statement. “The effects of the coronavirus will weigh on economic activity in the near-term and pose risks to the economic outlook.“ But the purchases will also push down rates for mortgages and other consumer and business loans, as the more than $3 trillion in Fed bond purchases did during and after the financial crisis. But with long-term rates at historically low levels, some economists have questioned the effectiveness of a new program.
Powell, however, said"we think we have plenty of policy space left" and"plenty of powerful tools," citing additional asset purchases and guidance about how long it can keep interest rates near zero. And to further bolster lending, the Fed is reducing to zero the level of reserves it requires banks to hold.
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