Fed Slashes Rates to Fight Coronavirus Slowdown

This article appeared first in the Wall Street Journal by Nick Timiraos Updated March 15, 2020 5:03 pm ET

The Federal Reserve slashed its benchmark interest rate to near zero on Sunday and said it would buy $700 billion in Treasury and mortgage-backed securities in an aggressive bid to prevent market disruptions from aggravating what is likely to be a severe slowdown from the coronavirus pandemic.

“The coronavirus outbreak has harmed communities and disrupted economic activity in many countries, including the United States,” the Fed’s rate-setting committee said in a statement Sunday. “The Federal Reserve is prepared to use its full range of tools to support the flow of credit to households and businesses.”

Fed Chairman Jerome Powell is set to hold a news conference at 6 p.m.

The Fed will buy at least $500 billion in Treasury securities and $200 billion in mortgage-backed securities over the coming months to help unclog markets that grew dysfunctional last week, the central bank said. It said it would initiate the program, called quantitative easing, on Monday.

The Fed said it was activating swap lines with five other central banks, including the European Central Bank and the Bank of England, to smooth out disruptions in overseas dollar-funding markets, effectively encouraging foreign central banks to use existing facilities to supply dollars to their own financial systems.

The central bank also announced a series of steps to boost lending, including by lowering the rate charged to banks for short-term emergency loans from its discount window to 0.25% from 1.75%. It said it would encourage banks to tap their capital and liquidity buffers to lend to households and businesses affected by the coronavirus.