Fed Interest Rate Decision Quick Analysis:  Sober crisis management

The Federal Reserve kept the base rate unchanged at 0.25% at the first FOMC meeting since the twin emergency reductions in March and restarting its quantitative easing programs in support of a locked down US economy.

Revised economic and rate projections, originally scheduled for the supplanted then cancelled March 17-18 FOMC, were not released with the statement as had been expected.  

FOMC statement

“The coronavirus outbreak is causing tremendous human and economic hardship across the United States and around the world,” noted the unusually somber FOMC statement.

“The ongoing public health crisis will weigh heavily on economic activity, employment, and inflation in the near term, and poses considerable risks to the economic outlook over the medium term.”

“In light of these developments, the Committee decided to maintain the target range for the federal funds rate at 0 to 1/4 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 statement.

Emergency measures

There was no estimate in the statement about how long the Fed may maintain its emergency programs only that “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.” 

There was also no mention of the specific domestic and international measures the bank has taken in the past two months just the observation that…”the Federal Reserve will continue to purchase Treasury securities and agency residential and commercial mortgage-backed securities in the amounts needed to support smooth market functioning, thereby fostering effective transmission of monetary policy to broader financial conditions.”

The Fed has enacted two emergency rate cuts totaling 1.5% since the start of the pandemic, bringing the fed funds rate to 0.25%, where it was for seven years after the 2008-2009 financial crisis. The bank has also created ten different programs of bond purchases, loan provisions and other arrangement to provide liquidity to global and domestic markets and funds directly to businesses, local governments and individuals who need assistance.

Dollar and market impact

The economic contraction, job losses  and the Fed's emergency stance will Iikley keep the dollar's risk status intact at least until the pandemic recedes and the US recovery is credibly underway.