The US Federal Reserve launched the largest monetary stimulus package since the 2008 financial crisis on Sunday, with a sudden cut in interest rates to almost 0% and a liquidity injection of $ 700 billion, at the the time he urged an aggressive fiscal response to the coronavirus.
“The coronavirus outbreak has damaged communities and disrupted economic activity in many countries, including the US. The Federal Reserve is prepared to use all of its tools fully to support the flow of credit to households and businesses,” the statement said. central bank.
The Fed’s decision, taken by surprise and just three days before its meeting scheduled for this week, denotes the alert within the central bank in the face of growing signs that the pandemic may slow global economic activity.
He also stated that he will leave rates in the current range of between 0.25% and 0% “until we are confident that the economy has weathered recent events and is on track to achieve its goals of maximum employment and price stability” .
It is the second time that the US central bank cuts interest rates in less than two weeks, in the face of growing concern about the economic impact of the coronavirus, since on March 3 it announced, also suddenly, cuts in the price of money by half a point to leave them between 1 and 1.25%.
In an impromptu telephone news conference on Sunday afternoon, Fed Chairman Jerome Powell for the time being ruled out the possibility of the Fed adopting negative interest rates, as other central banks have done.
“We don’t see negative interest rates as an appropriate response here in the US,” he said.
He did, however, urge Congress to pass a supplemental fiscal stimulus package.
“Certainly, there could be a need for that (the fiscal stimulus) … This is a multifaceted problem and requires responses from different parts of the government,” he said, referring to the negotiations currently underway in the US Congress to launch an aggressive Fiscal support program to support households and businesses.
The emergency measures of the US central bank are of enormous magnitude.
In addition to the rate cut, the Fed will buy in the coming months Treasury bonds worth 500,000 million dollars and mortgage guarantee assets for another 200,000 million, to provide an injection of liquidity to the system in the face of the tensions generated.
And, internationally, it announced a coordinated measure with the central banks of Canada, England, Japan, Switzerland and the European Central Bank (ECB), to channel more liquidity to the market through dollar exchange lines.
For analysts, the Fed has launched with all its arsenal before “the challenging period” ahead.
“It did everything it could do, as an independent central bank, with the measures at its disposal and with great speed,” said Simon Potter, who worked at the New York Fed and is now a researcher at the Peterson Institute for International Economics.
Just minutes after the announcement, US President Donald Trump said he was “very happy” with the Fed’s decision, which he has repeatedly criticized, and was optimistic about a good reaction in the stock markets, which suffered heavy losses in recent days.
“I am very happy, I have to say it, I am very happy (…) I think that the people in the markets have to be delighted. We are the strongest country in the world financially and in other things as well,” said the president, who over the weekend, he came to point to the possibility of firing Powell, at a press conference at the White House.