The Federal Reserve unleased much of its arsenal Sunday to combat the economic damage caused by the coronavirus, cutting short-term interest rates to zero, renewing its crisis-era bond purchases to lower long-term rates and encouraging more bank loans to households and businesses.
Central bank policymakers agreed to lower the Fed’s benchmark federal funds rate by a full percentage point to a range of zero to 0.25% — where it hovered for years during and after the 2008 financial crisis.
“The coronavirus outbreak has harmed communities and disrupted economic activity in many countries, including the United States,” the Fed said in a statement. ““The effects of the coronavirus will weigh on economic activity in the near-term and pose risks to the economic outlook.“
The Fed already had cut its key rate by half percentage point earlier this month. Many economists expected the central bank to agree to a percentage point cut at a two-day meeting that ends Wednesday, but the Fed decided to move early in a historic show of force.
The central bank is also renewing its bond buying campaign, saying it will purchase $500 billion in Treasury bonds and $200 billion in mortgage-backed securities to lower rates for mortgages and other consumer and business loans. The Fed said it will also reinvest those proceeds instead of letting them roll off its books.
“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 Fed said.
And the central bank is taking several steps “to support the flow of credit to households and businesses.” It’s lowering its “discount window” rate, the interest it charges banks for short-term loans. by 1.5 percentage points to 0.25%.
It’s also encouraging banks to use the their more than $4 trillion in pst-crisis capital cushions to lend money to households and businesses. Those buffers have been designed to guard against another financial crisis.