In its most dramatic action yet to combat the economic effects of the coronavirus disease 2019 (COVID-19), the Federal Reserve announced March 15 it would slash its benchmark interest rate to near zero and prevent “credit lock” by purchasing $700 billion in Treasury and mortgage bonds, according to a report by the Associated Press.
It was somewhat of a surprise announcement, but it indicates growing concern that the pandemic will cause a recession in the second quarter of 2020. The Fed cut its key interest rate by a full percentage point to a range between zero and 0.25 percent and indicated it would keep the rate there until fully confident the economy has weathered the COVID-19 storm.
In addition, in an effort to ensure the free flow of credit to businesses and keep financial markets functioning, the Fed will buy at least $500 billion of Treasury securities and at least $200 billion of mortgage-backed securities.
For the Fed, “This is a break-the-glass moment,” says Mark Zandi, chief economist at Moody’s Analytics. “They are throwing everything they’ve got at this.”
Shortly after the Fed’s announcement, U.S. stock futures began falling and Monday morning the markets dropped sharply in anticipation of a decline in business activity due to cancellations of large gatherings and calls for social disengagement.
