US Federal Reserve Slashes Interest Rate To Zero Amid COVID-19 Crisis

Publish On: 16 Mar, 2020 09:58 AM | Updated   |   Shivalik  

The Federal Reserve System has taken the notable step of slashing the rate of interest effectively to zero in emergency action to prop the US economy bogged down by the coronavirus crisis and facing the danger of a recession.

Federal Reserve Chairman Jerome Powell said on Sunday evening that the speed cut and other actions that were taken were meant to assist the US "weather this difficult period."

Other measures announced by the Federal Reserve System , the country's financial institution commonly mentioned because the Fed, include pumping $700 billion into the US economy by buying government bonds worth $500 billion and $200 billion of mortgage-backed securities.

This is expected to lower the value of future debt and ease pressures on the housing market.

US President Donald Trump, who had been criticising Powell for not cutting the rate of interest and taking other measures to stimulate the economy, congratulated him after the Fed action was announced.

"That's really good news, that's really great for our country," he said.

The benchmark Fed rate of interest which was 1 per cent to 1.25 per cent after a 0.5 per cent cut on March 3 was cut effectively on Sunday by another 1 per cent to the 0 per cent to 0.25 per cent range.

Powell predicted that the coronavirus pandemic will "have a significant effect on economic activity in the near term."

To counteract this, he said,  "We are prepared to use our full range of tools to support the flow of credit to help households and businesses."

The Fed measures are aimed toward lowering the interest rates banks charge consumers and businesses and making loans available to them to satisfy the setbacks from the coronavirus.

The measures are the most important steps taken since the 2008 financial crisis that plunged the state into a recession, which now stares it in the face as many businesses are being forced to chop back operations and tens of thousands of workers are in danger of losing their jobs.

The stock markets have plunged about 20 per cent since the highs in February, despite the about 9 per cent bounce on Friday, putting them in market territory.

The latest measures follow the Fed's offer last week to form $1.75 trillion available for the bond market to make sure funds availability for its operations.

On Friday, Trump declared a national emergency that he said would make available $50 billion to fight the fallout of the coronavirus crisis.

The House of Representatives passed a huge relief package on Saturday morning which will be haunted by the Senate next week.

The package referred to as Families First Coronavirus Response Act is backed by Trump and lots of Republicans and it provides for paid leave, family leave and free testing for COVID-19.

The US now joins several countries like Japan, Germany, France and therefore the Netherlands that have zero or negative interest rates.