Fed, banks act to cushion coronavirus blow

The US Federal Reserve has slashed rates to near zero, restarted bond buying and joined with other central banks to ensure liquidity in dollar lending to help put a floor under a rapidly disintegrating global economy due to the coronavirus pandemic.

And in a dramatic move that underscored the depth of the economic threat as businesses shutter and potentially millions of jobs evaporate, the Fed encouraged banks to tap trillions of dollars in equity and liquid assets built up as capital buffers since the financial crisis to support firms and people whose lives have been upended by the virus.

"The virus is having a profound effect on people across the United States and around the world," Fed Chair Jerome Powell said in a news conference after cutting short-term rates to a target range of 0 per cent to 0.25 per cent, and announcing at least $700 billion in Treasuries and mortgage-backed securities purchases in coming weeks.

As governments restrict gatherings, businesses and schools close, and families begin to hunker down in an effort to reduce the spread of the virus, Fed officials will "do what we can to ease hardship" as economic activity slows this quarter and next, he said.

Powell said he could not say how long or how big the downturn will be, but promised to keep rates where they are until Fed officials are "confident that the economy has weathered recent events and is on track to achieve its maximum employment and price stability goals." The Fed will delay official economic forecasts until June, he said.

In a complementary move, eight of the biggest US banks said they would stop stock buybacks through the second quarter, "consistent with our collective objective to use our significant capital and liquidity to provide maximum support to individuals, small businesses, and the broader economy through lending and other important services."

The virus' march across America from Washington to California to New York has closed schools, sparked runs on grocery stores, shuttered retailers, and put an end to sports events big and small, and America's top infectious disease expert Dr. Anthony Fauci warned Sunday that the conditions would likely get worse before they get better.

Despite the central banks' support, S&P 500 index futures were trading 4.8 per cent down. The dollar dropped. US crude fell more than $1 per barrel to a session low. And US 10-year Treasury note futures prices opened more than 1 point higher.

President Donald Trump called the actions "good news" that "makes me very happy."

It was the third time this month the US central bank took emergency action to protect financial markets and the economy.

On March 3, it cut interest rates by a half of a percentage point and last week in the face of an accellerating market meltdown it injected cash into short-term funding markets and launched a wave of Treasury security purchases.

Austrlaian Associated PressBack to Breaking News

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