WASHINGTON — The Federal Reserve announced extraordinary action Sunday to try to blunt the heavy damage the coronavirus outbreak has begun to inflict on the U.S. economy.
It’s slashing its benchmark interest rate to near zero. It’s buying $700 billion in bonds. It’s moving aggressively to smooth disruptions in the Treasury market.
And it’s prepared to do more.
The surprise intervention was an acknowledgement by the Fed that the economy seems suddenly on the brink of recession and a signal that it will do all it can to minimize the blow to households, companies and the economy.
Collectively, its actions are intended to keep markets functioning and lending flowing to businesses and consumers. Otherwise, as revenue dries up for countless small businesses that have suddenly lost customers, these employers could be forced to lay off workers or even seek bankruptcy protection.
By slashing its benchmark short-term rate and pumping hundreds of billions of dollars into the financial system, the Fed’s moves recalled the emergency action it took at the height of the financial crisis.
And yet Chairman Jerome Powell acknowledged in a conference call with reporters that the Fed’s action isn’t likely to prevent the recession. The main reason: The economy is coming to a standstill because of the necessary behavioral changes being made across the country to stem the viral outbreak — an avoidance of travel, shopping and mass gatherings.
Rather, the economic outlook, the Fed recognizes, depends mainly on how quickly the United States can arrest the spread of the virus.