Fed cuts interest rate to nearly zero

WASHINGTON -- The US Federal Reserve on Sunday cut its benchmark interest rate by a full percentage point to near zero and will increase its bond holdings by at least $700 billion amid mounting fears over the coronavirus outbreak.

"The coronavirus outbreak has harmed communities and disrupted economic activity in many countries, including the United States," the Fed said in a statement after an emergency policy meeting, adding global financial conditions have also been "significantly affected."

The central bank noted that the effects of the coronavirus will "weigh on" US economic activity in the near term and pose risks to the economic outlook. Therefore, the Federal Open Market Committee (FOMC), the Fed's policy-making committee, decided to lower the target range for the federal funds rate to 0-0.25 percent.

"The Committee 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," said the Fed.

The Fed also said that it 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 over coming months.

"The Federal Reserve 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," the central bank said.

The Fed's latest action came less than two weeks after it slashed rates by a half percentage point in an emergency move that failed to reassure nervous investors, as the coronavirus outbreak has posed "evolving risks" to economic activity.

About 55 business and academic economists recently polled by The Wall Street Journal expect, on average, US gross domestic product (GDP) to contract at an annual rate of 0.1 percent in the second quarter due to the epidemic.

That is a large downgrade from forecasts in February, when those economists expected US GDP growth of 1.9 percent from April to June, the poll showed.

Diane Swonk, chief economist at Grant Thornton, a major accounting firm, said the Fed's latest action is "so important" and will help ease credit market conditions.

"The key is to keep companies and consumer sideswiped by a health crisis afloat and solvent in #COVID19-tainted waters," Swonk tweeted Sunday. "This isn't a banking crisis -- it is a health crisis that we can prevent from militating into a financial crisis."