Fed Slashes Rates And Restarts QE

Because the Federal Reserve has determined the outbreak of COVID19 has already harmed communities and disrupted economic activity both here in the US and worldwide, yesterday they cut interest rates to essentially zero and launched a massive $700 billion quantitative easing program to shelter the economy from the effects of the virus.

The Fed also slashed the rate of emergency lending at the discount window for banks by 125 basis points to 0.25%, and lengthened the term of loans to 90 days. Although this was an aggressive move, stocks continue to plunge lower.

The discount window “plays an important role in supporting the liquidity and stability of the banking system and the effective implementation of monetary policy … [and] supports the smooth flow of credit to households and businesses,” a separate Fed note said.

The Fed also cut reserve requirements for thousands of banks to zero, according to CNBC’s Steve Liesman. “In addition, in a globally coordinated move by central banks, the Fed said the Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank, the Federal Reserve, and the Swiss National Bank took action to enhance dollar liquidity around the world through existing dollar swap arrangements.”

This dramatic move appeared to be the largest single-day set of actions the bank had ever taken. At a press conference Sunday evening following the decision, Fed Chair Jerome Powell said the Fed would be patient before lifting rates again. “We will maintain the rate at this level until we’re confident that the economy has weathered recent events and is on track to achieve our maximum employment and price stability goals,” he said.

The Fed statement in included mention of how it is prepared to use its full range of tools to support the flow of credit to households and businesses and thereby promote its maximum employment and price stability goals.

Source: CNBC | TBWS