- Fed reserve, on Sunday, announced the surge in their benchmark interest rates near zero.
- With the cut, the Fed Reserve rolls out plans to purchase bonds called ‘Quantitative Easing’(QE).
- The fright of recessions sharpens in the US due to the steps taken by Fed Reserve.
Steps Executed to Fight Slowing Economy
The Fed Reserve Chairman Jerome H.Powell, on Sunday, announced the measures incorporated to uplift the economy. The benchmark U.S interest rates have come down in the range of 0 – 0.25% from 1 – 1.25%.
Besides the cuts, the Fed all set forth to introduce ‘Quantitative Easing’, purchasing bonds worth $700 Million to shelter the economy from the effect of COVID – 19. It also slashed the emergency lending rate at the discount window for banks by 125 basis points to 0.25%. Also lengthened the term of loans to 90 days.
“Economic policy experts must do what can to ease hardship caused by the disruption to the economy. We are prepared to use our full range of tools to support the flow of credit to households and businesses.” Powell said, addressing a press conference on Sunday.
“Our goal is to do all we can to help the nation ‘weather this difficult period’ and foster a more vigorous return to normal once the disruptions from the coronavirus abate,” he added.
The course of Action Initiated
The ultra-low rates remain constant until the economy regains recovery to reach till standard. Powell announced joint action with the other central banks all over the world.
The Fed also cut the reserve requirements for thousands of banks to zero.
The largest banks in America announced that they would stop repurchasing their shares. But instead, use the money to give away loans to the customers.
The banks across the globe like, the Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank, the Federal Reserve, and the Swiss bank would work with the central bank to enhance dollar liquidity by different dollar swaps arrangements across the globe.
Quantitative easing will include $500 billion in Treasuries and $200 billion in agency-backed mortgage securities. The purchases would begin on Monday with a $40 billion installment.
The Aftermath of the Fed Reserve announcement
The analysts of leading global investment banking and securities, Goldman Sachs, had already degraded their forecast for the U.S economy before the cuts. The analysts said that the U.S economy will foresee a zero-growth in the first quarter and 5% for the second quarter. The third and fourth quarters would witness sharpened growth to bring back the economy to normal by the end of 2020.
A Fed Governor from 2006 to 2009, Randy Kroszner said there are many other measures the Fed can roll out other than these cuts.
“ The Fed can do a lot to provide liquidity to do the markets, but it can’t solve a disruption in the supply chain, it can’t cure a virus,” he added.
The layouts have already begun across the country as the large and small businesses are undergoing a fall out in their sales. The U.S stock market surged after the announcement.
- Stock-index futures opened sharply but fell 5% extending losses.
- Futures on the Dow Jones Industrial Average US: YM00 were 1042 points lower at 21,798.
- S&P 500 futures US: ES00 dropped 128.40 points to 2555.50.
The U.S. dollar also weakened against major currencies after the Fed’s monetary actions.
Previously, Donald Trump, U.S President had declared a national emergency over the coronavirus on Friday. He dispensed $50 Billion for U.S states and territories to provide assistance for the people affected by this epidemic.
Trump, appreciating the bold move undertaken by Chairman Powell said, “It makes me very happy and I want to congratulate the Federal Reserve. I think that people in the market should be very thrilled.”
Effects on the Crypto Market
In no time, the chairman of Federal Reserve announced measures to boost the economy, Bitcoin started regaining its value. In recent weeks, Bitcoin suffered a downfall. But as the Benchmark rates were slashed, Bitcoin price perked up 14.33% accounting value of $5,940.Along with Bitcoin, other currencies like XRP, Bitcoin Cash and Ethereum Classic gain 3.47%,3.47%, and 6.63% respectively.
Brain Amstrong, CEO of Coinbase exchange, in a series of tweets, predicted a good year for cryptocurrencies. He predicted a good growth for currencies post the Federal Reserve announced interest rates cuts. He also mentioned governments all around the globe can take up measures like QE and increasing the supply of money by printing them. Adding to it, he said China has already started printing, which probably could be used in the crypto market.
Mr. Powell has assured of various other steps only after the COVID-19 epidemic erases out to some extent. The global economy will also witness speedy recovery soon. We, the spectators, need to sit back and relax and witness the roller-coaster ride of the economy in the coming days.