The United States economy has been swaying in the wind for some time now as the country has been plagued by multiple factors. The impact of Coronavirus was a double whammy on the financial system that was already on its knees.
To ensure that the economy does not tank completely due to the closures of offices and organizations, the Federal Reserve on Sunday decided to cut the target fed fund rates again. The cut was a record-breaker because it was four times as much as the change predicted.
The Coronavirus spread has resulted in such a phase shift that countries across the globe have been bracing for effects across industries. This meant at the same time protecting the economy, the industry and the wellbeing of all people. The US-adopted Zero Interest Rate Strategy was achieved at the meeting of the Federal Open Market Committee, which was moved from Tuesday to Sunday.
The last time the US saw such a rate cut was right after the start of the 2008 global recession. Interest rates between 0 and 0.25 points were treated as markers for shakeup in the financial ecosystem. In 2018, the rate as 2.5 percent which was routinely cut down over multiple weeks in 2020. According to an official publication by the Federal Reserve:
“Consistent with its statutory mandate, the Federal Open Market Committee seeks to foster maximum employment and price stability. The effects of the Coronavirus will weigh on economic activity in the near term and pose risks to the economic outlook. In light of these developments, the Committee decided to lower the target range for the federal funds rate to 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.”
The Fed claimed that it will continue to monitor the implications of incoming information for the country’s economic outlook. To make sure that all citizens have a level playing field, the Fed will take into account factors such as labor market conditions, indicators of inflation pressures etc. America’s financial regulators were also prepared to support the flow of credit to households and businesses.
As the Fed begins preparations to tackle the fallout of the Coronavirus spread, Bitcoin continued to drop in value. The world’s largest cryptocurrency had fallen by more than 7 percent in the past 24 hours and was trading for $4895. The total BTC market cap was $89.4 billion while the daily market volume was $37.6 billion. Bitcoin’s fall sent shockwaves across the industry because it took a massive hit despite being known as a ‘safe haven’ asset.
While Bitcoin struggled to cross the $5000 mark, the Fed also decided to buy $500 billion in US Treasury bonds. The body will also purchase $200 billion in mortgage-backed securities, an asset becoming increasingly popular in the States. Taking into account all the purchases made by the Fed, it was calculated that the Reserve’s balance was up to $5 trillion.
Only time will tell if the current pandemic scare continues to affect world industries. Regions such as Italy and Spain continued to report new cases as societal lock-downs became more and more common. The Federal Reserve will hope that the virus is brought under control soon so that its effects do not become set in stone.
