WASHINGTON — With the fast-spreading coronavirus posing a dire threat to economic growth, the Federal Reserve on Sunday night took the dramatic step of slashing interest rates to near-zero and unveiled a sweeping set of programs in an effort to backstop the United States economy.
In addition to cutting its benchmark interest rate by a full percentage point, returning it to a range of 0 to 0.25 percent, the Fed said it would snap up huge amounts of government and mortgage-backed debt. The central bank said it planned to increase its holdings of Treasury securities by at least $500 billion and its holdings of government mortgage-backed securities by at least $200 billion “over coming months.”
The remarkable Sunday afternoon action — reminiscent of the global financial crisis a dozen years ago — reflected the imminent peril facing the economy. With a rapidly unfolding seize-up of economic activity from a virus that has shuttered factories, quarantined workers and disrupted everyday life and a recession looking like a near-certainty, the U.S. central bank deployed multiple tools across several areas of policy to try to contain the damage.
“The coronavirus outbreak has harmed communities and disrupted economic activity in many countries, including the United States,” the central bank said in a statement on Sunday. “The Federal Reserve is prepared to use its full range of tools to support the flow of credit to households and businesses.”
“The committee will continue to closely monitor market conditions and is prepared to adjust its plans as appropriate,” it said.
President Trump praised the Fed’s action. “I want to congratulate the Federal Reserve,” Mr. Trump said on Sunday night. “People in the market should be very thrilled.” He added, “We got it down to potentially zero.”
The Fed also encouraged banks to use its discount window, which provides ready access to financing, and said it was “encouraging banks to use their capital and liquidity buffers as they lend to households and businesses.” The Fed also eliminated bank reserve requirements — a suite of efforts meant to free up cash for the banks to keep lending.
The central bank also announced that the Fed, along with the Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank and the Swiss National Bank would lower the pricing on the standing U.S. dollar liquidity swap arrangements and take other measures to encourage their use and effectiveness — an effort to keep dollar funding flowing globally.
The Fed has a history of using “swap lines” to help foreign central banks deliver U.S. dollar funding to financial institutions in their regions amid market stress. Such agreements were used extensively during the financial crisis.