The Federal Reserve on Sunday slashed its benchmark interest rate by a full percentage point to nearly zero and announced it would purchase more Treasury securities to encourage lending to offset the impact of the coronavirus outbreak.
The central bank said the effects of the outbreak will weigh on economic activity in the near term and pose risks to the economic outlook. The central bank said it will keep rates at nearly zero until it feels confident the economy has weathered recent events.
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Due to the outbreak, the U.S. stock market has lost most if not all of its gains since President Donald Trump took office in 2017. Public schools and municipalities are closing across the country. Employees are working from home or being laid off, and major athletic and entertainment events are being called off until further notice.
U.S. Treasury Secretary Steven Mnuchin said earlier Sunday that both the central bank and the federal government have tools at their disposal to support the economy.
Mnuchin also said he did not think the economy is yet in recession. Most economists, however, believe a recession is already here, or will be soon. JPMorgan Chase predicts the economy will shrink 2% in the current quarter and 3% in the April-June quarter.
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"I don't think so," Mnuchin said, when asked if the U.S. is in recession. "The real issue is what economic tools are we going to use to make sure we get through this."
On Saturday, President Donald Trump reiterated his frequent demand that the Fed "get on board and do what they should do," reflecting his argument that benchmark U.S. rates should be as low as they are in Europe and Japan, where they're now negative. Negative rates are generally seen as a sign of economic distress, and there's little evidence that they help stimulate growth. Fed officials have indicated that they're unlikely to cut rates below zero.
On Friday afternoon, Trump declared a national emergency as the rapidly spreading coronavirus continued to tighten its grip on the world while upending everyday life in America.
Trump announced the decision at a 3 p.m. news conference in the White House Rose Garden, saying he would seek “to unleash the full power of the federal government” to stop the spread of the virus.
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The declaration allows the president to invoke the Stafford Act, which frees up $50 billion in federal aid to assist in the global coronavirus outbreak.
On Friday night, House Speaker Nancy Pelosi announced a deal with the Trump administration for an aid package from Congress that would provide free tests, sick pay for workers and bolster food programs.
With the virus depressing travel, spending, and corporate investment and forcing the cancellation of sports leagues, business conferences, music performances, and Broadway shows, economists increasingly expect the economy to shrink for at least one or two quarters. A six-month contraction would meet an informal definition of a recession.
The Associated Press contributed to this report.
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