The Federal Reserve (Fed) of USA swept into action in an effort to save the US economy from the fallout of the coronavirus, slashing its benchmark interest rate by a full percentage point to near zero and promising to boost its bond holdings by at least $700 billion, comprising of $500 billion of Treasury securities and at least $200 billion of mortgage backed securities (MBS).
Fed chairman, Jerome Powell, told newsmen that the virus’ disruption to lives and businesses meant second quarter growth would probably be weak and it was hard to know how long the pain would last.
“We do know that the virus will run its course and that the US economy will resume a normal level of activity. In the meantime, the Fed will continue to use our tools to support the flow of credit,” Powell said.
The Fed pulled out some of the biggest weapons in its arsenal by cutting its key rate to 0.25 percent, matching the record low level it hit during the 2008 financial crisis and where it was held until December 2015.
The US central bank also announced several other actions, including letting banks borrow from the discount window for as long as 90 days and reducing reserve requirement ratios to zero percent.
In addition, it united with five other central banks to ensure dollars are available around the world via swap lines. Powell said he did not think negative rates, which have been used in Europe and Japan, would be appropriate policy in the US.
As the fallout spreads across the economy, the risk of a recession is mounting. Goldman Sachs cut its GDP forecasts. It is now predicting zero growth in the first quarter and a 5 percent contraction in the second for the American economy.
MAURICE OGU (@cojmaurice)
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