Federal Reserve Slashes Rates to Near-Zero and Announces $700B Quantitative Easing

  • In an emergency move, the Federal Reserve announced it is slashing fed funds rates to 0%-0.25%.
  • In addition, the Fed announced a $700 billion QE program of purchasing treasuries and mortgage backed securities.

It is all hands on deck at the Federal Reserve. The central bank announced Sunday that the Federal Open Markets Committe (FOMC) has voted to slash federal funds rates window 100 basis points — from 1.00%-1.25% to 0.00%-0.25%. This is the rate the central bank lends to large financial institutions.

The new rate marks a return to rates set by the central bank in the depths of the 2008 Great Recession. The move underscores the Fed’s dire reading of current economic conditions.

Federal Funds Rate – 62 Year Historical Chart

In addition to the rate cut, the Fed announced a $700 billion quantitative easing package in an effort to keep liquidity flowing in financial markets. The program will entail $500 billion of Treasury notes and $200 billion of mortgage backed securities. The move is designed to stave off the kind of credit crunch that kicked off the Great Recession.

Sunday’s move appeared to be the largest single-day action ever taken by the Fed on record.

In it’s release, the FOMC pointed the the uncertainty and turmoil in the markets created by the coronavirus pandemic as the main reason for Sunday’s action. “The coronavirus outbreak has harmed communities and disrupted economic activity in many countries, including the United States,” the statement reads.

The new fed funds rate will remain at the new level “until [the FOMC] is confident that the economy has weathered recent events and is on track to achieve its maximum employment and price stability goals,” the statement continues.

This follows Fed actions over the past two weeks including expanding the overnight credit offering, or repo market, by up to $1.5 trillion in efforts to ensure market liquidity.

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