The Federal Reserve signaled Wednesday that it will keep its key short-term interest rate near zero for the foreseeable future as part of its extraordinary efforts to bolster an economy that is sinking into its worst crisis since the 1930s As part of its emergency steps, the Fed said it will also keep buying Treasury and mortgage bonds to help keep rates low and ensure that companies can continue to lend easily to each other amid a near-paralysis of the economy caused by the coronavirus. It did not specify any amounts or timing for its bond purchases. “The Federal Reserve is committed to using its full range of tools to support the U.S. economy in this challenging time,” the central bank said in an unusually sweeping declaration at the top of its statement. The viral outbreak and measures to contain it,” the Fed’s policy statement noted, are “inducing sharp declines in economic activity and a surge in job losses.” Under Chairman Jerome Powell, the Fed is confronting a deeply perilous moment for an economy that had looked robust just a few months ago. Since the virus struck with full force last month, widespread business shutdowns have caused roughly 30 million workers to lose jobs. As layoffs mount, retail sales are sinking, along with manufacturing, construction, home sales and consumer confidence. In its statement, the Fed also raised concerns about slowing inflation, which is likely to sink further below its 2% target level in the coming months. “Weaker demand and significantly lower oil prices are holding down consumer price inflation,” the statement said. During two emergency meetings in March, the central bank cut its benchmark rate to a range between zero and 0.25% . It has also announced nine new lending programs to pump cash into financial markets and provide support to large and medium-sized businesses as well as cities and states. The Fed’s statement provided no additional details about its actions. It said it will keep its rate at nearly zero “until it is confident that the economy has weathered recent events and is on track to achieve its maximum employment and price stability goals.” That’s the same language it used in its previous statement last month. Nor did the Fed provide details about the pace of its purchases of Treasurys and mortgage-backed securities. It has tapered those purchases recently as markets have calmed. But earlier this month, it bought as many Treasury securities in a day as it did during an entire month in the 2008-2009 Great Recession. The Fed’s statement came on the same day that the Commerce Department released grim news about the economy: Economic output shrank at a 4.8% annual rate in the first three months of the year – the worst showing since the Great Recession struck near the end of 2008. The economic picture is expected to grow ever darker, with the economy forecast to contract at a shocking 30% to 40% annual rate in the April-June quarter. The unemployment rate could reach 20% when April’s jobs report is released next week. The central bank has already slashed its benchmark interest rate to near zero and escalated its purchases of Treasury and mortgage-backed securities to pump cash into financial markets to smooth the flow of credit. It has also said it will buy corporate bonds and lend to states and cities – two actions it has never previously taken.
The Federal Reserve on Sunday slashed interest rates by a full percentage point to near zero and said it would buy $700 billion in Treasury securities, an aggressive step to insulate the U.S. economy from the coronavirus pandemic. “The coronavirus outbreak has harmed communities and disrupted economic activity in many countries, including the United States,” the Federal Open Market Committee said in a statement. “The Federal Reserve is prepared to use its full range of tools to support the flow of credit to households and businesses.” The benchmark federal fund rate is now at a range of 0 to 0.25 percent, down from a range of 1 to 1.25 percent. The cut essentially brings the nation’s interest rate to zero — something that President Trump has repeatedly pressed for over the past year. The historically low interest rates, which have not been at this level since the 2008 financial crisis, are expected to remain until the economy recovers from the recent downturn. “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,” the Fed said in its Sunday evening statement. The Fed also said that it will buy at least $500 billion in Treasury securities and $200 billion in mortgage-backed securities over the coming months, a program known as “quantitative easing.” Earlier this month, Powell announced an emergency 50-basis-point cut to the benchmark federal funds rate, sending it to a range of just 1 percent to 1.25 percent. It marked the first time since the financial crisis that the Fed has reduced its key rate outside of scheduled policy-setting meetings. “Desperate times call for desperate measures and the Fed is doing just that in an effort to keep credit markets functioning and prevent the type of starving of credit that nearly toppled the global economy into a depression in 2008,” Bankrate chief financial analyst Greg McBride said in a statement.
The Federal Reserve promised to unleash a torrent of liquidity Thursday to fight what it described as “highly unusual disruptions in Treasury financing markets associated with the coronavirus outbreak.” The Federal Reserve Bank of New York said in a statement that this week it would offer an additional $1 trillion of repos to banks, loans of cash collateralized by U.S. government securities. The first $500 billion of three-month repos was offered today at 1:30 p.m. A second round of $500 billion three month repos and a fresh $500 billion of one-month repos will be offered Friday. These three-month and one-month repos operations will continue on a weekly basis for the remainder of the month, at least. This is in addition to the $175 billion in daily overnight repo operations and at least $45 billion in two-week term repo operations the Fed currently offers twice per week. In addition, The Fed said announcement saw the Fed widen the scale for its “reserve management” program purchasing $60 billion worth of money Treasury bonds to include longer-term Treasuries and other securities issued by the Treasury. Prior to today, the program was set to purchase only short-term Treasuries. “Specifically, the Desk plans to distribute reserve management purchases across eleven sectors, including nominal coupons, bills, Treasury Inflation-Protected Securities, and Floating Rate Notes,” the New York Fed said in a statement.
The Federal Reserve announced an emergency interest rate cut Tuesday, saying it was slashing its benchmark target by half a percentage point to combat the risks by the global outbreak of the coronavirus. This was the largest move in interest rates since the Fed cut rates during the financial crisis and the first emergency cut since late 2008. Typically, the rate target only moves its rate target at scheduled meetings. The next meeting is set to begin in two weeks. “The fundamentals of the U.S. economy remain strong. However, the coronavirus poses evolving risks to economic activity. In light of these risks and in support of achieving its maximum employment and price stability goals, the Federal Open Market Committee decided today to lower the target range for the federal funds rate by 1/2 percentage point, to 1 to 1‑1/4 percent,” the Fed said in a statement. In a press conference held after the announcement, Fed chair Jerome Powell said outbreak had disrupted economic activity in many countries and led to “significant movements” in financial markets. “The virus and the measures being taken to contain it will surely weigh on economic activity both here and abroad for some time,” Powell said. The rate cut comes after ten days or so of mounting concerns over the coronavirus roiling financial markets. President Donald Trump has urged the Fed to take action a number of times over the past week, arguing that the central bank had to deploy a more accommodative monetary policy to deal with the economic risks because Democrats in Congress were unlikely to vote for a tax cut to stimulate growth. Powell denied that pressure from the president had played any role in the decision to cut rates, saying the Fed had only taken into account its analysis of the economic situation in light of its mandate to foster price stability and maximum employment. “We’re never going to consider any political considerations whatsoever. We will not do that and it’s very important that the public understand that,” Powell said. Financial markets themselves have pressured the Fed, pushing longer-term interest rates to record lows and fed funds futures prices to reflect what amounted to a demand by investors that the Fed move off its previous “wait and see” stance. The first U.S. deaths from the coronavirus were reported Saturday. At the time of the Fed announcement Wednesday, the death toll had climbed to 6. Some have argued that the health impacts in the U.S. are unlikely to be large and described the coronavirus as likely to be similar to a “very bad flu season.” Powell pointed out that the economic toll could still be significant. “For us what really matters is not the epidemiology but the risks to the economy. So we saw the risks to the economy and chose to act,” Powell explains. In his press conference, Powell said that the central bank was already seeing the effects in the travel and tourism industries and had heard concerns from businesses that rely on global supply chains. It is still too early to know how large or how long the impact on the U.S. economy will be, Powell said. Trump responded to the cut with a call for the Fed to do more. “The Federal Reserve is cutting but must further ease and, most importantly, come into line with other countries/competitors. We are not playing on a level field. Not fair to USA. It is finally time for the Federal Reserve to LEAD. More easing and cutting!”
Agreed, Mr. President! This was a good move by the Fed. But, they need to do more…and soon!
Senators delivered a show of confidence in Jerome Powell, President Trump’s pick for chairman of the Federal Reserve System, voting overwhelmingly Tuesday to confirm him to the position. Mr. Powell, who’s been part of the Fed’s board of governors, will replace Janet Yellen, whom Mr. Trump declined to nominate for a second term. As chairman, Mr. Powell will be the most important voice in deciding how the Federal Reserve moves forward with the economy appearing to be humming yet again, even as banks chafe against restrictions imposed in the wake of the 2008 Wall Street collapse. Tuesday’s 85-12 vote saw just four Republicans and eight members of the Democratic Caucus vote against Mr. Powell, who had enjoyed bipartisan support before. “He has served as a steady voice and thoughtful leader,” Majority Leader Mitch McConnell said in urging his confirmation. The U.S. Chamber of Commerce called Mr. Powell the “right man at the right time.” The Federal Reserve is an independent government agency charged with keeping inflation in check and supporting job growth. It took on an outsized role in the Wall Street collapse, sparking criticism from some quarters that it had overstepped. More recently the Fed has raised some key interest rates, hoping to keep the economy growing without overheating. Mr. Trump had criticized Ms. Yellen’s performance during the presidential campaign, but in office he changed his tone, even calling her tenure “excellent.” But he did not give her a second term, making her the first chair in decades to be ousted after one four-year period. Her predecessor, Ben Bernanke, served for two terms, and before that Alan Greenspan served for nearly two decades.
As expected the Federal Reserve raised short-term interest rates by 0.25% and reiterated there will likely be two more increases from the central bank this year. Click here for analysis, market reaction and a press conference with Fed Chief Janet Yellen who detailed the Fed’s newest projections for the U.S. economy, the first since President Trump took office.
Wow.. I think this is ill advised, and poorly timed. Guess we’ll see.. Definitely something to keep an eye on..
An excellent op/ed by Steve Forbes on the Fed’s current power grab. Its a wake up call we all need to be aware of. Read, and pass along!