The U.S. Federal Reserve has cut its benchmark interest rate by a full percentage point to near zero and promised to boost its bond holdings by at least $700 billion.
Fed Chairman Jerome Powell told a hastily assembled press briefing by telephone on Sunday that the disruption to lives and businesses caused by the coronavirus meant second quarter U.S. growth would probably be weak and it was hard to know how long the effects would last. That left a clear role for fiscal policy to help cushion the blow.
"The thing that fiscal policy, and really only fiscal policy can do, is reach out directly to affected industries, affected workers, and we’ve seen some of that so that’s an important job," said Powell. "We do know that the virus will run its course and that the U.S. 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."
The U.S. central bank pulled out some of the biggest weapons in its arsenal. Its key rate is now 0% to 0.25%, matching the record low level it hit during the 2008 financial crisis and where it was held until December 2015.
The central bank also announced several other actions on Sunday, including letting banks borrow from the discount window for as long as 90 days and reducing reserve requirement ratios to 0%. In addition, the Fed united with five other central banks to ensure dollars are available around the world via swap lines.
Powell said that he did not think negative rates, which have been used in Europe and Japan, would be appropriate policy in the U.S.
