Mar 16, 2020 - Economy & Business

Why the Fed action matters

Illustration: Sarah Grillo/Axios

The Federal Reserve, in conjunction with central banks around the world, took drastic action on Sunday night — the kind of action not seen since the global financial crisis — to try to prevent the novel coronavirus from devastating the economy.

What they did: The Fed slashed interest rates to near zero Sunday night, announced a $700 billion bond-buying program, and relaxed bank capital regulations to encourage further lending.

Why it matters: Thousands of businesses and millions of households are about to suffer extreme economic hardship. Employers and employees in the travel, entertainment, sports, hospitality, retail, and many other industries are going to see losses and layoffs for as long as COVID-19 is raging.

  • Once the pandemic is over, all of those businesses can and should come roaring back. In order to do so, they will require new loans to help them get through the bad times, as well as money to refinance existing debts as they come due.
  • Monetary policy can't fight the coronavirus directly. But it can help ease the economic pain that the virus causes.

The bottom line: The Fed is using every weapon in its arsenal to encourage banks to lend money freely at the lowest possible interest rates. If its actions work, it will prevent thousands of businesses, large and small, from failing.

Go deeper

Fed cuts interest rates to near zero in emergency coronavirus intervention

Photo: Mark Makela/Getty Images

The Federal Reserve on Sunday cut its benchmark interest rate to almost zero and launched a $700 billion quantitative easing program in response to the expected economic downturn and stock market slump caused by the coronavirus.

Why it matters: This is the most drastic measure the Fed could take to try to shield the economy amid a global pandemic. The central bank hasn’t made moves this dramatic since the financial crisis.

Go deeperArrowUpdated Mar 15, 2020 - Economy & Business

Fed says it will help business-funding market amid coronavirus outbreak

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The Federal Reserve said Tuesday it would intervene in a key market used by cash-strapped businesses for the first time since the financial crisis — a move intended to help corporations hurt by the coronavirus outbreak.

Why it matters: This market froze up in recent weeks, limiting businesses' ability to borrow at a time when the halt in economic activity is weighing on American corporations. It's the latest in a series of moves by the Fed to step in and ease that pain.

Go deeperArrowUpdated Mar 18, 2020 - Economy & Business

The Fed goes to war with coronavirus

Photo illustration: Sarah Grillo/Axios. Photo: Scott Olson/Getty Images

While President Trump has waffled on coronavirus and the Senate and House of Representatives have bickered over how best to deploy a fiscal response, the Federal Reserve has unleashed an onslaught of monetary policy power.

What happened: Having fired the full arsenal it deployed during the 2007–2009 global financial crisis in a matter of weeks, the Fed has committed to trillions in buying. And, it now promises unlimited purchases of U.S. government debt and mortgage-backed securities as well as municipal and corporate bond buys.