Monday, March 16, 2020

The Fed's Latest Suprise

The Federal Reserve cut interest rates to essentially zero yesterday and launched a massive $700 billion quantitative easing program to shelter the economy as it teeters on the brink of recession. The new fed funds rate will now be targeted at 0 percent to 0.25 percent, down from a target range of 1 percent to 1.25 percent.

In addition to rate cuts, the Fed also said it would purchase another $700 billion worth of Treasury bonds and mortgage-backed securities. It also struck a deal with five other foreign central banks, the Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank and the Swiss National Bank, to lower their rates on currency swaps to keep the financial markets functioning normally.

The central bank pre-empted a Federal Open Market Committee meeting scheduled for Tuesday and Wednesday, with a policy announcement that was due on Wednesday. This was less than two weeks after the Fed had already made an impromptu cut of 0.5 percent.

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