Fed cuts interest rate to zero in surprise move to contain virus shock

16, Mar. 2020

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WASHINGTON, Kyodo - The U.S. Federal Reserve said Sunday it will slash its key interest rate to near zero and increase its bond holdings by at least $700 billion, in a surprise move to shield the world's largest economy from the fallout from the new coronavirus.

Based on the decision by the policy-setting Federal Open Market Committee, the central bank decided to cut its target range for the federal funds rate by 1 percentage point to 0.00 to 0.25 percent, the lowest level since 2015.

"The Committee expects to maintain this target range until it is confident that the economy has weathered recent events and is on track to achieve its maximum employment and price stability goals," the Fed said in a statement.

It acknowledged that the coronavirus outbreak has disrupted economic activity in many countries, including the United States, and that global financial conditions have been "significantly affected."

The decision "will help support economic activity, strong labor market conditions, and inflation returning" to the Fed's 2 percent objective, the statement said.

It is the second emergency action taken by the U.S. central bank over the virus. On March 3, it decided to cut its key interest rate by 0.50 percentage point.

Meanwhile, six central banks, including the Fed, the Bank of Japan and the European Central Bank, will take coordinated action to enhance the provision of U.S. dollar liquidity, the Fed said in a separate statement.

Financial markets have remained volatile despite the Fed's March 3 action, which was the first emergency rate cut since the 2008 global financial crisis, due to deepening uncertainty over the COVID-19 pandemic.

The Dow Jones Industrial Average in New York suffered on Thursday its biggest percentage fall since the Black Monday stock market crash in 1987, while U.S. President Donald Trump on Friday declared a national emergency over the spread of the virus in the country.

Trump, who has been criticizing the Fed for not taking aggressive enough action, said at a press conference Sunday that he was "very happy" about the Fed's actions. (Kyodo)