The US Federal Reserve slashed rates back to near zero, restarted bond buying and joined with other central banks to ensure liquidity in dollar lending to help put a floor under a rapidly disintegrating global economy during the escalating coronavirus pandemic.
And in a dramatic move that underscored the depth of the economic threat as businesses shutter and potentially millions of jobs evaporate, the Fed encouraged banks to use the trillions of dollars in equity and liquid assets built up as capital buffers since the financial crisis to support firms and people whose lives have been upended by the virus.
“The effects of the coronavirus will weigh on economic activity in the near term and pose risks to the economic outlook. In light of these developments, the Committee decided to lower the target range,” the Fed said, adding that it is “encouraging banks to use their capital and liquidity buffers as they lend to households and businesses who are affected by the coronavirus.”
The Fed cut rates to a target range of 0 percent to 0.25 percent and said it would expand its balance sheet by at least US$700 billion in coming weeks.
“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.
The Fed and other major foreign central banks also cut pricing on their swap lines to make it easier to provide dollars to financial institutions facing stress in credit markets. The Fed, the Bank of Canada, European Central Bank, Bank of England, Bank of Japan and Swiss National Bank had set up swap lines in the financial crisis.
It was the third time this month the US central bank took emergency action outside of a regularly scheduled policy meeting to protect financial markets and the economy.
On March 3, it cut interest rates by a half of a percentage point and last week in the face of an accelerating market meltdown it injected cash into short-term funding markets and launched a wave of Treasury security purchases.
On Sunday, the Fed took further steps to boost liquidity in the US financial system.
It lowered the primary credit rate by 150 basis points to 0.25 percent in order to encourage banks to tap its emergency lending window. Depository institutions may borrow from this so-called discount window for periods as long as 90 days, pre-payable and renewable by the borrower on a daily basis, it said.
The Fed also said it would support US banks that began to tap the capital and liquidity buffers they built up in the aftermath of the 2008 financial crisis and would reduce reserve requirement ratios to 0 percent effective on March 26.
“This action eliminates reserve requirements for thousands of depository institutions and will help to support lending to households and businesses,” the Fed said.
Policymakers were not due to hold their next interest-rate setting meeting until Tuesday and Wednesday.
President Donald Trump called the actions “good news” that “makes me very happy.”