The Federal Reserve slashed interest rates to near zero percent on Sunday amid the coronavirus pandemic, and said it would purchase $500 billion in Treasury securities and $200 billion in mortgage-backed securities to support the economy and offset the negative financial impact of the COVID-19 outbreak.
In the emergency announcement, the monetary authority said the interest rates will be maintained at near zero until the economy withstands the effects of the coronavirus. The central bank also urged banks to supply credit to the economy through the elimination of reserve requirements and by allowing financial firms access to capital.
"The Federal Reserve 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," the Federal Reserve said in a statement, adding that the COVID-19 pandemic has "harmed communities and disrupted communities in many countries."
"This action will help support economic activity, strong labor market conditions, and inflation returning to the Committee's symmetric 2 percent objective."
Jerome Powell, the chair of the Federal Reserve, explained about the actions taken in his opening remarks during a conference call: "The Federal Reserve's role is guided by our mandate from Congress to promote maximum employment and stable prices for the American people, along with our responsibilities to promote the stability of the financial system. Today, we reduced the target range for our policy interest rate by 1 percentage point, bringing it close to zero, and said that we expect to maintain the rate at this level until we're confident that the economy has weathered recent events
and is on track to achieve our maximum employment and price stability goals."
"The actions we have announced today will help American families and businesses, and indeed, our entire economy weather this difficult period and will foster a more vigorous return to normal once the disruptions from the coronavirus abate," he later added. "We will continue to closely monitor economic and financial developments and their implications for the economic outlook. We are prepared to use our full range of tools to support the flow of credit to households and business, to help keep the economy strong, and to promote our maximum employment and price stability goals."
This is the first time interest rates have been slashed to near zero since the global financial crisis.
Newsweek reached out to the Federal Reserve Bank for additional information.
Greg McBride, chief financial analyst for Bankrate.com, said the Fed "needed to act" quickly, "before the open of Asian markets in just a few hours."
"Desperate times call for desperate measures," McBride explained, "and the Fed is doing just that in an effort to keep credit markets functioning and prevent the type of starving of credit that nearly toppled the global economy into a depression in 2008."
Although McBride believes reducing interest rates will slightly ease the burden of existing debts, he said it's unlikely to prompt the usual surge of borrowing.
Moments after the news was announced, President Donald Trump took the stage at a press conference late Sunday afternoon on coronavirus updates and began his remarks by praising the Federal Reserve cut.
"It makes me very happy," the president said. "I want to congratulate the Federal Reserve, for starters they've lowered the fed rate from what it was, which was 1 to 1.25. And it's been lowered down to 0 to 0.25. That's a big difference. That's about a point.
"In addition, very importantly, the federal reserve is going to be purchasing $500 billion of Treasurys and $200 billion of mortgage backed securities and that number can increase but they're going to start with that," Trump added. "That's really good news. That's really great for our country."
Updated 8:03 PM ET, to include remarks by Jerome Powell from his conference call.
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