US Fed slashes benchmark interest rate, eases lending rules amid coronavirus

Wednesday, 18 Mar, 2020

US President Donald Trump accused the Federal Reserve on Saturday of not being "aggressive" enough to counteract the coronavirus-linked economic slump, while insisting he had no plans to replace the bank's president, frequently a target of his criticism.

The US Federal Reserve cut interest rates to near zero on Sunday in another emergency move to help support the economy amid the fallout of the global coronavirus pandemic.

The Fed slashed its benchmark rate by a full percentage point to near zero and promised to boost its bond holdings by almost $700 billion as it braced for the fallout from the virus.

The Fed's rate cut combined with the promise of more bond buying pushed USA 10-year Treasury yields down sharply to 0.66%, from 0.95% late on Friday.

The RBI has been taking some calibrated measures to ensure financial markets and institutions remain sound and resilient. "They are throwing everything they've got at this".

President Trump - who has often slammed the Fed for first raising rates and then not cutting them more quickly - praised the actions minutes later. Under this, the central bank will make available $2 billion to the forex markets for six months.

Five of its peers also joined up to offer cheap USA dollar funding for financial institutions facing stress in credit markets. The moves came amid a rout in stocks and bond markets as investor anxiety deepened over the difficulty of tackling a pathogen that has left thousands dead and put many countries under virtual lockdowns.

Powell warned that the economy would likely shrink in the April-June quarter because of the widespread shutdowns from the coronavirus and a broad pullback in consumer spending. Economists, however, say the lower rates reflect the weaker economic outlooks than the USA economy. RBI, he said, is in the process of ascertaining the impact the virus could have on the economy.

Still, he added that "economic policymakers must do what we can to ease hardship caused by disruptions to the economy, and support a swift return to normal once they've passed".

The bond and mortgage security purchases are tools the Fed previously used during the most recent recession.

"We have some tremendous opportunities right now, but Jerome Powell is not making it easy", he said. In addition, the Fed coordinated with five other central banks to ensure borrowing liquidity by lowering rates and extending the lending period. The governor requested depositors not to be in a hurry to withdraw, as "never in the history of banks (in India) have depositors lost their money".

Stock futures for the major market indices are now down about 5% Sunday evening.

The jury seemed to be out on that with E-mini futures for the S&P 500 index down 4.77% to their daily trading limit outside the United States.

The gold price jumped out of the gate on the Comex market in NY, touching a high of $1,554.30, up $67.80 an ounce, or 4.6% compared to Monday's close.

President Trump celebrated the news during Sunday's press briefing at the White House.

"It is a great opportunity for people to enter into the gold market."