Fed Slashes Rates, Opens $700 Billion of QE to Buoy Collapsing Markets

16 March 2020, 01:15 GMT+0000
Updated by Kyle Baird
24 March 2020, 08:04 GMT+0000
Federal Reserve Chairman Jerome Powell announced Sunday that the agency would take drastic measures to help to collapse financial markets. [CNBC] The announcement included dropping the Fed funds rate to 0%-0.25% and $700 billion in quantitative easing.
The announcement was not a surprise, given the dramatic losses in the stock and Bitcoin markets. The Fed is likely hoping that the actions will substantially increase liquidity and spending among businesses.  Privacy Cryptocurrency

Rate Cuts

The announcement included guidance on Fed policy decisions going forward as well. Powell said that the Fed would continue to keep rates at this level indefinitely. He said rates will remain, 
“…until it is confident that the economy has weathered recent events and is on track to achieve its maximum employment and price stability goals.”
Only one monetary policymaker voted no, preferring to keep the rate at 0.5%. The hope was to leave some space in the rates for future reductions. All other members of the board agreed to the dramatic cut. 

Quantitative Easing

The additional measures include a substantial quantitative easing commitment as well. This was broken down into $500 billion of purchased Treasury bonds and $200 billion in mortgage-backed securities.  This easing activity is scheduled to begin with $40 billion being purchased on Monday. This is coupled with the already enacted $1.5 trillion overnight credit offering, often termed a repo. 

Market Response

The markets did not respond as hoped. Dow futures dropped another 900 points, as continued fears over the economic impact of the quarantines raged. Bitcoin also dropped a smaller percentage, hovering at around $5,300.  The market’s response reveals that the overall awareness of the economic impact of the virus will continue. Traders and investors are apparently aware of the difficulties in the market and the complexities of keeping the economy running during the time of crisis. 


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