Fed cuts interest rates to near zero to fight coronavirus impact

The Federal Reserve took emergency action Sunday and slashed its benchmark interest rate by a full percentage point to nearly zero and announced it would purchase $ 700 billion in Treasury and mortgage-backed securities to encourage lending to try to offset the impact of the novel coronavirus outbreak

The U.S. central bank said the effects of the outbreak will weigh on economic activity in the near term and pose risks to the economic outlook. The Fed also said it will keep rates at nearly zero until it feels confident the economy has weathered recent events.

The Sunday cut is one of the most drastic steps the central bank has taken since the depths of the 2008 financial crisis. It is an effort to loosen up the country’s monetary supply and stimulate lending to try to counter the coronavirus’ growing damage to the U.S. economy and the financial markets.

The Fed was expected to take action at its scheduled meeting Wednesday. The fact that the Fed moved earlier than many observers thought, making its second emergency cut in less than a month, signals policy makers’ level of concern.

Coronavirus triggered the Fed’s largest cut in interest rates since 2008

Nonetheless, with the virus’ spread causing a broad shutdown of economic activity in the United States, the Fed faces a daunting task. Its tools — intended to ease borrowing rates, facilitate lending and boost business and consumer confidence — aren’t ideally suited to offset a fear-driven halt in spending and traveling.

All told, the Fed’s actions would amount to a recognition that the U.S. economy faces its most perilous juncture since the recession ended more than a decade ago.

“I think the Fed has to bring the big guns,” said Gennadiy Goldberg, senior U.S. rates strategist for TD Securities.

Separately, Treasury Secretary Steven Mnuchin said earlier Sunday that both the central bank and the federal government have tools at their disposal to support the economy.

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Moneywatch – CBSNews.com

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