The United States Federal Reserve Announces a New Interest Rate Decision
The Federal Reserve of the United States has announced a new interest rate decision. The Fed lowered its policy interest rate to a range of 0–0.25% and launched a monetary expansion program totaling $700 billion. In response to the economic impact of the novel coronavirus, the Fed implemented a second rate cut immediately before the Open Market Committee meeting held on March 17–18, 2020, with the aim of mitigating the pandemic’s economic effects.
In its statement, the Federal Reserve noted that the coronavirus outbreak has caused significant harm to populations in the United States and many other countries. The Fed observed substantial disruptions in economic activity across affected nations and significant implications for global financial conditions.
While recent economic data indicated that the U.S. entered this challenging period from a position of relative strength, the Fed noted that data since the January 2020 FOMC meeting showed the labor market remained very strong through February and that economic activity had shown modest improvement up to that point.
The Federal Reserve’s Assessment of Coronavirus Effects on Markets
In evaluating the market impact of the coronavirus, the Fed highlighted stress in the energy sector. It reported that year-over-year inflation measures, excluding food and energy, were running below the 2% target, while longer-term inflation expectations had changed little.
The Fed emphasized that the effects of the COVID-19 outbreak were likely to weigh on near-term economic activity and posed risks to the economic outlook. In light of these developments, the committee decided to lower the FOMC’s policy rate to the 0–0.25% range. The Fed stressed that this rate cut, together with other policy actions, was intended to support economic activity, help sustain the strong labor market, and foster convergence of inflation toward the committee’s 2% objective.