US Fed Cuts Key Interest Rate to 0-0.25% Amid Coronavirus Crisis

Washington: In a drastic measure to stem any major disruption to the US economy as a result of the coronavirus outbreak, the Federal Reserve has cut its benchmark interest rate to almost zero and said it would buy $700 billion in bonds.

The COVID-19 pandemic has sickened more than 156,000 people worldwide and left more than 5,800 dead. The death toll in the US stands at 68, while infections neared 3,700.

Scientists, research institutions and pharmaceutical companies in the country are racing against time to find a vaccine to the virus that has spread across the world and is having a major disruptive impact on the economy, particularly in the global supply chain.

The Federal Reserve on Sunday announced slashing the key rate and buying $700 billion in Treasury and mortgage-backed securities to help the economy withstand the viral outbreak. "The coronavirus outbreak has harmed communities and disrupted economic activity in many countries, including the United States," the Fed said in a statement.

Global financial conditions have also been significantly affected, it said, and noted that available economic data showed the US economy came into this challenging period on a strong footing.

"The effects of the coronavirus will weigh on economic activity in the near term and pose risks to the economic outlook," the Fed said.

"We have responded very strongly not just with interest rates but also with liquidity measures today," Fed Reserve Board Chairman Jerome Powell told reporters at a news conference.

US President Donald Trump, who a day earlier was very critical of the Fed, welcomed the move. "I want to congratulate the Federal Reserve," he said. "People in the market should be very thrilled. ... We got it down to potentially zero," the President added.

The Federal Reserve said that it has decided to lower the target range for the federal funds rate to 0-0.25%. It 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 goal.

"This action will help support economic activity, strong labour market conditions, and inflation returning to the committee's symmetric two percent objective," The Fed said.

The Federal Reserve said that it would continue to monitor the implications of incoming information for the economic outlook, including that of public health, as well as global developments and muted inflation pressures, and will use its tools and act appropriately to support the economy.

In determining the timing and size of future adjustments to the stance of monetary policy, the committee will assess realised and expected economic conditions relative to its maximum employment objective and its symmetric two per cent inflation objective. This assessment will take into account a wide range of information, including measures of labour market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments, the Fed said.

It added that to support the smooth functioning of markets for Treasury securities and agency mortgage-backed securities that are central to the flow of credit to households and businesses, over the coming months, the committee would increase its holdings of Treasury securities by at least $500 billion and agency mortgage-backed securities by at least $200 billion.

Asian Stock Markets, US Futures Sink

Asian stock markets and U.S. futures fell Monday after the Federal Reserve slashed its key interest rate to shore up economic growth in the face of mounting global anti-virus controls that are shutting down business and travel, AP reported from Beijing.

Sydney's benchmark plunged 7% and Hong Kong's Hang Seng lost 2%. Shanghai was down 0.5% and Tokyo was flat. Brent crude, the international oil standard, fell 3% while gold gained.

On Wall Street, futures for the benchmark S&P 500 index fell 5% on Sunday night and triggered a halt in trading.

“Despite whipping out the big guns," the Fed's action is "falling short of being the decisive backstop for markets,” said Vishnu Varathan of Mizuho Bank in a report.

“Markets might have perceived the Fed's response as panic, feeding into its own fears.”

Japan's central bank was holding a policy meeting, convened several days earlier than planned. Bank of Japan Gov. Haruhiko Kuroda has pledged to do whatever is needed to help buttress slumping economic growth after the economy contracted at a 7.1% annual rate in the last quarter, before the impact of the virus outbreak had even been felt.

Western governments have shut public facilities and imposed travel curbs, raising the cost of efforts to contain the outbreak that has infected nearly 170,000 people worldwide. China, where the coronavirus emerged in December, accounts for about half of those, but a dozen other countries have more than 1,000 cases each.

Spain followed Italy's lead in imposing nationwide curbs will allow its 46 million people to leave home only to go to work, to buy food and medicine or on errands to care for the young and elderly. In the Philippines, soldiers and police sealed off the crowded capital, Manila, from most domestic travelers.

New York City announced it will shut down the largest U.S. public school system as early as Tuesday, sending more than 1.1 million children home. Governors in California, Illinois and Ohio told all bars and restaurants to close or reduce their number of customers.