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Federal Reserve Cuts Rates Based on Coronavirus Risks

Federal Reserve Makes Additional Emergency Cut to Rate -March 15, 2020

On March 15, 2020, the Federal Reserve announced that it was cutting its benchmark federal funds rate by 1% to a range of 0% to .25%, alongside other measures meant to stimulate the national economy as it struggles due to the Coronavirus pandemic.

Along with lowering the short-term interest rate by 1% to basically zero, the Federal Reserve implemented a bond-buying program, known as quantitative easing, of at least $700 billion.  In a press conference announcing the measures, Chairman Jerome Powell indicated that the Federal Reserve can and will do more if necessary and noted that “measures to stem the spread of the illness will have a significant effect on economic activity in the near term.”

Specifically, the Federal Reserve is expected to keep rates near zero “until it is confident the economy has weathered recent events and is on track to achieve its maximum employment and price stability goals.” The Federal Reserve plans to continue monitoring financial developments and use its tools to act as needed to support the economy.

Initial Federal Rate Cut - March 3, 2020

The Federal Reserve’s Open Market Committee unanimously approved an emergency rate cut of a half percentage point in between scheduled federal policy meetings for the first time since the 2008 financial crisis. The Federal Reserve decided not to wait until the committee’s next scheduled meeting on March 18, 2020 to cut the benchmark rate. 

As the spread of the coronavirus (COVID-19) increases, the economic impact is increasing for the U.S. and around the globe.  The Federal Reserve stated in a press release that the “coronavirus poses evolving risks to economic stability” and that the rate cut was made in “light of these risks and in support of achieving the maximum employment and price stability goals.” 

In a news conference held Tuesday, March 3, the Federal Chairman Jerome Powell advised that “the virus and measures being taken to contain it will weigh on economic activity here and abroad for some time.”  He further emphasized that “the Federal Reserve is closely monitoring developments and their implications for the economic outlook.” The action by the Federal Reserve comes after a week with stocks posting the largest weekly losses since 2008.     

In response to the emergency rate cute, Joel Kan, Associate Vice President of Economic and Industry Forecasting with the Mortgage Bankers Association noted that “long-term, further spread of the virus would likely dampen consumer confidence and spending, and ultimately slow economic growth.”   To read more from  the Mortgage Bankers Association, click here