Fed lowers target range for the federal funds

March 16, 2020


The coronavirus outbreak to date has disrupted economic activity in many countries, harmed many communities and affected global financial conditions also.  The U.S. economy entered this challenging period on a solid foundation. The labour market has strengthened through February as economic activity gained momentum at a modest rate according to data received since the Federal Open Market Committee met in January. Job gains have improved on average, while unemployment has remained low. The Federal Reserve notes that, “Although household spending rose at a moderate pace, business fixed investment and exports remained weak. More recently, the energy sector has come under stress. On a 12‑month basis, overall inflation and inflation for items other than food and energy are running below 2%.”

In light of this, the Committee has decided to lower the target range for the federal funds rate to 0% – 0.25% as it seeks to foster maximum employment and price stability. The FOMC notes that the effects of the coronavirus will weigh on economic activity in the near term and pose risks to the economic outlook. This target range is expected to be maintained until the Committee is confident that the economy has weathered recent events and is on track to accomplish its goals of maximum employment and price stability. The FOMC notes that, “This action will help support economic activity, strong labor market conditions, and inflation returning to the Committee’s symmetric 2 percent objective.”

The Committee will continue to monitor the implications of incoming information for the economic outlook, including information related to public health, as well as global developments and muted inflation pressures, and will use its tools and act as appropriate to support the economy.

Additionally, the Federal Reserve noted it, “is prepared to use its full range of tools to support the flow of credit to households and businesses and thereby promote its maximum employment and price stability goals. 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 coming months the Committee will increase its holdings of Treasury securities by at least $500 billion and its holdings of agency mortgage-backed securities by at least $200 billion.”



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