US Interest Rates

(16 March 2020)  On Sunday, in anticipation of the dire potential effects of the coronavirus on the US economy, the US Federal Reserve slashed the federal funds rates to near zero. In addition to the one-percentage-point rate cut decrease—the second emergency rate cut so far this month—the Fed:

• Cut reserve requirements for 1000s of banks to zero;
• Announced a $700 billion quantitative easing program ($500 billion of Treasurys, $200 billion of agency-backed mortgage securities) that will be launched Monday with an initial a $40 billion in asset purchases;
• Decreased the emergency lending rate at the discount window by 125 basis points to 0.25% in addition to lengthening and loan terms to 90 days; and
• Coordinated with several central banks globally, including the Banks of Canada, England, Japan, and Switzerland as well as the European Central Bank, to execute existing dollar swap arrangements to enhance the liquidity of the US dollar globally.

All eyes now turn to market response, consumer confidence, and other leading indicators to assess the depth of the economic weakness in the United States as the coronavirus remains as yet unchecked.