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US Fed saw need for ‘forceful’ policy response, minutes show

​Policy makers saw risks pointing to the downside and warranting a “forceful” response.

Bloomberg|
Last Updated: Apr 08, 2020, 11.45 PM IST
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By Matthew Boesler

Federal Reserve officials went into crisis-fighting mode as they grasped the scale of the harm the coronavirus pandemic would likely do the U.S. economy.

Policy makers saw risks pointing to the downside and warranting a “forceful” response, according to a record of their emergency gathering Sunday, March 15.

“All participants viewed the near-term U.S. economic outlook as having deteriorated sharply in recent weeks and as having become profoundly uncertain,” minutes published Wednesday of the Federal Open Market Committee meeting showed.

Slashed Rates
At the unscheduled meeting, officials announced that they would cut their benchmark interest rate to nearly zero and relaunch massive bond-buying programs to pump cash into the financial system, as they sought to shelter the U.S. economy from the coronavirus pandemic.

Millions of Americans have lost their jobs over the last several week as businesses shuttered to stem the virus outbreak. Private-sector forecasters now expect a historic contraction in second quarter U.S. output, followed by a rebound in the second half of the year.

In an evening teleconference following the March 15 announcement, Fed Chair Jerome Powell told reporters that he expected the virus to run its course and the U.S. economy to resume a normal level of activity. But he said “in the meantime, the Fed will continue to use our tools to support the flow of credit to households and businesses and support demand with monetary policy -- ultimately, to do what we can to see that the recovery is as vigorous as possible.”

Since then, the U.S. central bank has begun rolling out a number of emergency lending programs first deployed in the wake of the 2008 financial crisis. Those include measures to fund short-term borrowings of companies in the commercial paper market and clean up the balance sheets of dealer banks and money-market mutual funds by accepting a wide range of securities as collateral in exchange for cash loans.

The Fed has also since announced new lending programs which would see them extend support to large companies through purchases of longer-term corporate debt, as well as facilities that will offer lifelines to small and medium-sized businesses. Investors also increasingly expect the central bank to intervene in the market for municipal debt as states and cities face an increasingly dire financial situation brought about by government-mandated shutdowns, which have decimated tax revenues.

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