The US Federal Reserve has slashed its key interest rate and will start a massive $US700 billion (more than $A1.1 trillion) in a new round of quantitative easing to try and ease growing pressures in US financial markets caused by the growing damage the spread of the COVID-19 virus is doing in the US.
The cut, delivered late Sunday afternoon, is the second emergency move by the US central bank and comes after a 0.50% between meeting cut in the Federal Funds rate on March 3. It also follows a move by the Reserve Bank of New Zealand this morning to slash its key rate to a new low of 0.25% from 1% and promise a program of bond buying if need be.
The actions are the largest single-day set of moves the US central bank had ever taken, exceeding anything from the GFC and afterwards.
“The coronavirus outbreak has harmed communities and disrupted economic activity in many countries, including the United States,” the Fed said in a statement explaining the move.
The Fed also slashed the rate of emergency lending at the discount window for banks by 125 bps (1.25%) to 0.25%, and lengthened the term of loans to 90 days.
The new federal funds rate will now be targeted at 0%-0.25%. That rate is used as a benchmark for short-term lending for financial institutions and is a guide to many consumer rates.
Along with the rates, reserve requirements at banks were eased, and the Fed said it would work with foreign banks to enhance dollar liquidity.
The Fed said in a statement that it “is prepared to use its full range of tools to support the flow of credit to households and businesses and thereby promote its maximum employment and price stability goals.”
