Fed, Central Banks Step Up Coronavirus Response



The Federal Reserve issued three statements Sunday, which outlined its most recent efforts to address the financial ramifications of the coronavirus.

Second Rate Cut
The Federal Open Market Committee lowered the interest rate range to 0% to 0.25%. 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.

Supporting the Flow of Credit

In addition to cutting interest rates, the Fed stepped up its efforts to keep credit flowing to households and businesses with several actions.

To encourage banks to turn to the discount window to help meet demands for credit from households and businesses, the Fed lowered the primary credit rate by 150 basis points to 0.25%. This reduction in the primary credit rate reflects both the 100 basis point reduction in the target range for the federal funds rate and a 50 basis point narrowing in the primary credit rate relative to the top of the target range.

The Fed is encouraging banks to use their capital and liquidity buffers as they lend to households and businesses who are affected by the coronavirus.

The board has reduced reserve requirement ratios to 0% effective March 26, the beginning of the next reserve maintenance period. This action eliminates reserve requirements for thousands of depository institutions and will help to support lending to households and businesses.

Central Bank Coordination

The Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank, the Federal Reserve, and the Swiss National Bank announced coordinated action to enhance the provision of liquidity via the standing U.S. dollar liquidity swap line arrangements.

These central banks have agreed to lower the pricing on the standing U.S. dollar liquidity swap arrangements by 25 basis points, so that the new rate will be the U.S. dollar overnight index swap (OIS) rate plus 25 basis points.

The swap lines are available standing facilities and serve as an important liquidity backstop to ease strains in global funding markets, thereby helping to mitigate the effects of such strains on the supply of credit to households and businesses, both domestically and abroad.

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Terry Mulreany
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