US Fed cuts rates to zero, announces market support measures
By ECCT staff writers
Just a week after announcing an emergency 50 basis point rate cut, the US Federal Reserve cut rates today by a further full percentage point to a range of 0-0.25%. This brings US rates to a level not seen since 2015 and brings rates much closer to the negative levels of the EU. The Fed also announced wide-ranging actions to support financial markets, including an additional US$700 billion in asset purchases, expanded repurchase operations, dollar swap lines with foreign banks and a credit facility for commercial banks to ease household and business lending.
The unprecedented measures are aimed at calming volatile equity and bond markets that have seen moves of 10% or more in both directions over the past week.
However, it is not clear if monetary policy will have much of an impact on spurring economic activity when lending rates were already low by historical standards.
According to four former IMF chief economists, quoted in the Financial Times, the global economy has already fallen into recession and addressing the public health needs was the first priority, but with a sharp downturn likely, governments should be preparing to spend significant sums to protect businesses and households.