The US Federal Reserve issued a statement today indicating its intent to leverage all of its tools to help prop up the COVID-19 infected economy. The Fed said it is “committed to using its full range of tools to support the U.S. economy in this challenging time, thereby promoting its maximum employment and price stability goals.”
The Fed noted that the Coronavirus has impeded access to credit to both households and businesses. The crisis will “weigh heavily on economic activity, employment, and inflation in the near term, and poses considerable risks to the economic outlook over the medium term.”
The FOMC (Federal Open Market Committee) said it intended on keeping the federal funds rate at Zero to 0.25% thus in real terms – free money.
The Committee said 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 goals.
To support the flow of credit to households and businesses, the Fed said it will continue to purchase Treasury securities and agency residential and commercial mortgage-backed securities in the amounts needed to support smooth market functioning, thereby fostering effective transmission of monetary policy to broader financial conditions.
In addition, the Open Market Desk will continue to offer large-scale overnight and term repurchase agreement operations.
During the last recession, certain policy moves exacerbated the financial crisis thus prolonging the economic pain. It appears that the current Fed leadership has learned from that debacle. Of course, it remains unknown as to the long term impact of such unprecedented moves to facilitate credit as well as the profound fiscal programs injecting billions of dollars into the economy.
Update: During a virtual press conference, Fed Governor Jerome Powell said he expects more will need to be done alluding to more fiscal action emanating from Congress while stating the Fed still has some tools it may use going forward.
Powell said the Fed’s policy is right where it needs to be right now.
Powell hopes the economy will emerge stronger after the pandemic has passes.