• Thomas Parker

Federal Reserve cuts interest rates back to zero

Updated: Mar 24, 2020

The Federal Reserve slashed its benchmark interest rate to zero on Sunday in a move they hope can prevent the U.S. economy from falling into a recession. Earlier in the month, the Fed made an emergency rate cut of 0.5%, back to the 2008 recession-era levels.

The Fed also announced that it planned on purchasing at least $700 billion in government bonds and mortgage-backed securities as part of another emergency action to stave a recession. This will mark the fourth time that the Fed has engaged in the bond-buying program known as quantitative easing (or QE).

“The coronavirus outbreak has harmed communities and disrupted economic activity in many countries, including the United States,” the FOMC said in a statement. "Global financial conditions have also been significantly affected. Available economic data show that the U.S. economy came into this challenging period on a strong footing.”

On Monday, stocks plummeted even further off their highs and triggered another trading stoppage.

“We are prepared to use our full range of tools to support the flow of credit to households and businesses," said Federal Reserve Chair Jerome Powell. The Fed said that it expects to hold interest rates at zero until it is confident that the economy has weathered the recent economic turmoil.

The Federal Reserve had kept interest rates at zero percent for years following the 2008 financial crisis and recession, until the beginning of 2016 when they slowly began raising them.

Goldman Sachs significantly lowered its economic growth forecasts for the U.S. in 2020 to just above zero and predicted that the economy will contract sharply in the middle of the year.

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