The Federal Open Market Committee, or the FOMC, has surprised the world by initiating yet another emergency cut, the second one in as many weeks. This is to try and combat the rampant negative impact that the CORVID-19 virus had done on the world’s economy. CORVID-19 had recently achieved pandemic status, having spread across 100 territories and countries across the globe.

Trying To Counteract The Coronavirus Scare

The board of the FOMC has voted for another policy rate reduction of 100 bps to 0-0.25%. What this means, is the rate will be at its lowest point since 2015, when the first-rate hikes started. The Fed has also reenacted quantitative easing, or QE for short, and has pledged to buy a total of 700B in various mortgage-backed securities and US Treasuries.

The move itself came just two days before the scheduled meeting of the FOMC. Furthermore, the size reduction itself is twice the amount of the price cut that occurred earlier this month. Through a statement regarding the matter, members of the FOMC have pledged to maintain this target range until they are once again confident that the economy has withstood this crisis. The FOMC was quick to state that this runs in tandem with its goals to create the maximum amount of employment and overall price stability. It should be essential to note that Loretta Mester, the Fed President of Cleveland, was against the decision. In her eyes, a cut of 50 bps would’ve been satisfactory.

Replacing Old Countermeasures With The New

In regards to the QE measures about to take place, the Fed is set to increase its Treasury securities holdings by at least $500B, with its mortgage-backed securities set to increase by a minimum of $200B. The composition of these purchases is stated to help support the functioning of a smooth market in this time of crisis. It will be set roughly in line with the overall composition of the outstanding Treasury securities.

This program is set to replace the previous schedule of purchases of Treasury securities, as established by the New York Fed. Per the suggestions of a separate statement that the New York Fed had made, the process of buying Treasury will begin at $40B today, the 16th of March. The MBS will start at about $80B and will be done through a period between the 16th of March to the 13th of April.

A Global Trend

The Reserve Bank of New Zealand (RBNZ), on another note, has announced that it will enact an emergency cut on the OCR by 75 bps, to 0.25%. This interest rate, in the RBNZ’s opinion, is the “lower limit” they can achieve, with the operational readiness of the terrible markets being put in mind.