U.S. slashes federal interest rates in response to the coronavirus outbreak
- Author: Darren Santiago Mar 16, 2020,
Mar 16, 2020, 0:25
RATES OF government securities on offer this week will likely inch lower amid strong demand for safer assets as the coronavirus disease 2019 (COVID-19) pandemic continues to fuel uncertainties, spooking investors.
More than a decade ago, central banks around the world cut rates and began to inject trillions of dollars into banks to combat a global financial crisis.
"Today's coordinated action by major central banks will improve global liquidity by lowering the price and extending the maximum term of us dollar lending operations", Mark Carney said in a joint statement with Andrew Bailey, who succeeds him as Bank of England Governor tomorrow.
Its peer Barclays had also opined on Thursday that there can be a possibility of a rate cut between the policies.
"While we think central bank policy is important, we think the fiscal is much more important at this stage", said Eric Freedman, chief investment officer at U.S. Bank Wealth Management.
It said that the growth number for FY21 will come at 5.4 per cent, up from the 4.8 per cent in FY20.
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The Fed and other major foreign central banks also cut pricing on their swap lines to make it easier to provide dollars to financial institutions facing stress in credit markets.
The Federal Reserve cut its key interest rate to near zero, a move not seen since the depths of the 2008 financial crisis. The new coronavirus is presenting them with a very different challenge, at a time when some policymakers have barely caught their breath from the last economic disaster.
The three major USA stock averages pare their declines. A day later, the markets sharply rebounded.
The Federal Reserve Bank of NY said on Thursday it will introduce $1.5 trillion in new repo operations this week and start purchasing a range of maturities as part of its monthly Treasury purchases.
The announcement fuelled a sharp uptick in the ailing stock market Thursday afternoon.
On Thursday morning, Bank of America warned clients that the unwind of several trading strategies that rely heavily on borrowed money risked creating "a cascading effect whereby U.S. Treasury yields rise sharply and force liquidations from other similar investors". It will now buy other bonds on top of the billions of dollars of short-term T-Bills it has been dealing in now for months. The ECB's president said, though, that monetary policy couldn't do it alone and called for a "decisive and determined" response from governments.
Trump's speech to the nation on Wednesday contained few details on fiscal stimulus measures, but his imposition of restrictions on travel from Europe to the USA deepened the sense of alarm.