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Federal Reserve Slashes Interest Rate

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Desperate times call for desperate measures and the Federal Reserve took action by slashing the interest rate to near zero, saying it would purchase $700 billion in Treasury and mortgage bonds. This came at the concern that the current pandemic will deplete any semblance of financial progress in our country in the coming months or possibly, the coming year. The range they plan to keep it in is within zero and 0.25% temporarily until they feel safe to return to business as usual.

Desperate measures such as that of the central bank, purchasing $500 billion of Treasury securities and $200 billion of mortgage-backed securities, are being pushed forward. These measures are attempting to handle the sudden market disruption and abrupt halt of our economic growth. These disruptions careened the yield on the 10-year Treasury rising last week. This move is unprecedented and threatens to push borrowing costs for mortgages and credit cards higher. 

“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.

“It confirms that the Fed sees the economy going down … very sharply” toward recession, Adam Posen, president of the Peterson Institute for International Economics, said.

Among the announcements, The Fed released information about how they cut interest rates on dollar loans in a joint action with five major central banks overseas. With that, foreign banks will have access to money that they lend to overseas companies. 

“We have to hope that the Fed getting out in front of events, not to mention other central banks, pushes the economy in the right direction,” Posen said. “The heavy lifting for stimulus and for preventing lasting economic damage has to be done on the fiscal side. That’s nature of this shock.’’

There are various fiscal steps that can be taken to help the situation, such as providing sick leave and pay for quarantined workers and rolling over bank loans to small- and medium-sized businesses that were hit hard by the outbreak.

The Fed has a lot of difficult decision making to do and they will start by updating their forecasts for the economy and for the interest rates. Economists at Pimco predict that the Fed’s policymakers will collectively downgrade their estimate for growth this year from 2% to below 1.5%. “That figure would be consistent with an economic contraction in the first half of the year, followed by a sharp rebound,” Pimco said.

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  • Lydia Eskenazi PA

    Director of Real Estate Sales
    Harding Realty, Inc.


    +1 (305) 785-0440 Direct
    (305) 682-9051 Fax


    9473 Harding Avenue
    Surfside, FL 33154

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