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| Fed Emergency Rate Cuts Came as Economy Turned ‘Profoundly Uncertain’ | Fed Emergency Rate Cuts Came as Economy Turned ‘Profoundly Uncertain’ |
| (32 minutes later) | |
| Federal Reserve officials found themselves staring down a “profoundly uncertain” economic outlook, on top of a financial market meltdown, when they chose to slash interest rates to near zero in mid-March. | Federal Reserve officials found themselves staring down a “profoundly uncertain” economic outlook, on top of a financial market meltdown, when they chose to slash interest rates to near zero in mid-March. |
| Minutes from the Fed’s March 15 meeting, released on Wednesday, offer a glimpse at the conversations behind the central bank’s early response to economic fallout from the coronavirus. Officials had made an emergency rate cut — their first since 2008 — just weeks earlier at an unscheduled March 3 meeting. They followed that up by slashing borrowing costs to rock-bottom on a Sunday evening while rolling out a giant bond-purchasing program aimed at calming troubled markets. | Minutes from the Fed’s March 15 meeting, released on Wednesday, offer a glimpse at the conversations behind the central bank’s early response to economic fallout from the coronavirus. Officials had made an emergency rate cut — their first since 2008 — just weeks earlier at an unscheduled March 3 meeting. They followed that up by slashing borrowing costs to rock-bottom on a Sunday evening while rolling out a giant bond-purchasing program aimed at calming troubled markets. |
| “All participants viewed the near-term U.S. economic outlook as having deteriorated sharply in recent weeks and as having become profoundly uncertain,” according to minutes from the meeting. Officials also “noted that financial markets had exhibited extraordinary turbulence and stresses.” | “All participants viewed the near-term U.S. economic outlook as having deteriorated sharply in recent weeks and as having become profoundly uncertain,” according to minutes from the meeting. Officials also “noted that financial markets had exhibited extraordinary turbulence and stresses.” |
| The Fed’s March move came as mounting concerns about potential economic devastation from the coronavirus thrust Wall Street into turmoil, causing trading in usually deep and liquid markets — including that for Treasury securities — to gum up. The minutes underline that the financial disorder, paired with uncertainty about the broader economic outlook, drove officials to act. | The Fed’s March move came as mounting concerns about potential economic devastation from the coronavirus thrust Wall Street into turmoil, causing trading in usually deep and liquid markets — including that for Treasury securities — to gum up. The minutes underline that the financial disorder, paired with uncertainty about the broader economic outlook, drove officials to act. |
| Fed policymakers saw a “major downside risk that the spread of the virus might intensify in those areas of the country currently less affected, thereby sidelining many more U.S. workers and further damping purchases by consumers,” the minutes showed. | Fed policymakers saw a “major downside risk that the spread of the virus might intensify in those areas of the country currently less affected, thereby sidelining many more U.S. workers and further damping purchases by consumers,” the minutes showed. |
| Central bank staff reported that “concerns about the coronavirus outbreak dominated” markets, that rates on government securities had “plummeted” and that volatility had “soared.” The market for short-term loans to businesses was “nearly nonexistent.” | |
| Even with that grim backdrop, a “few” participants at the meeting would have preferred to cut interest rates less drastically, favoring a half-point reduction over the full percentage point move the Fed ultimately made. They wanted to preserve room to lower rates later and worried that a big cut “ran the risk of sending an overly negative signal about the economic outlook,” among other considerations, according to the minutes. | Even with that grim backdrop, a “few” participants at the meeting would have preferred to cut interest rates less drastically, favoring a half-point reduction over the full percentage point move the Fed ultimately made. They wanted to preserve room to lower rates later and worried that a big cut “ran the risk of sending an overly negative signal about the economic outlook,” among other considerations, according to the minutes. |
| Loretta Mester, the president of the Federal Reserve Bank of Cleveland, has a vote on monetary policy this year and dissented from the move. Only 12 of the Fed’s 17 officials hold a vote at any given time, with the regional presidents rotating in and out. | Loretta Mester, the president of the Federal Reserve Bank of Cleveland, has a vote on monetary policy this year and dissented from the move. Only 12 of the Fed’s 17 officials hold a vote at any given time, with the regional presidents rotating in and out. |
| Jerome H. Powell, the Fed chair, and his colleagues have remained active since the March rate cuts. On March 23, the central bank made its bond-buying program explicitly unlimited and broadened what it was willing to purchase, adding commercial mortgage-backed securities issued by government agencies. It expanded its balance sheet by about $1.6 trillion in March alone, so that it now totals about $6 trillion. | |
| The central bank has unveiled emergency lending programs in partnership with the Treasury Department to keep credit flowing, including programs that will buy corporate bonds and short-term business debt. It has announced that it will roll out a Main Street lending program, which is meant to target businesses that are not served by government small-business support programs. | The central bank has unveiled emergency lending programs in partnership with the Treasury Department to keep credit flowing, including programs that will buy corporate bonds and short-term business debt. It has announced that it will roll out a Main Street lending program, which is meant to target businesses that are not served by government small-business support programs. |
| Details on that program, which have been scant so far, are expected this week. Treasury Secretary Steven Mnuchin said in a CNBC interview on Wednesday that he has been talking with Mr. Powell daily and that “we hope to have an announcement this week with details on that and get it up and running as soon as we can.” | Details on that program, which have been scant so far, are expected this week. Treasury Secretary Steven Mnuchin said in a CNBC interview on Wednesday that he has been talking with Mr. Powell daily and that “we hope to have an announcement this week with details on that and get it up and running as soon as we can.” |
| Congress has given the Treasury Department $454 billion to support the Fed’s emergency programs by insuring against losses. That pot of money could support more than $4 trillion in lending and bond buying, depending on how much protection the central bank demands to cover credit risk. | Congress has given the Treasury Department $454 billion to support the Fed’s emergency programs by insuring against losses. That pot of money could support more than $4 trillion in lending and bond buying, depending on how much protection the central bank demands to cover credit risk. |
| The key question now is how fast those programs, which are legally and logistically complex, can get going. | The key question now is how fast those programs, which are legally and logistically complex, can get going. |
| The Fed’s commercial paper program, which will support the market for short-term business loans, was announced March 17 and is expected to be up and running April 14. Its corporate bond-buying programs, announced March 23, are still a few weeks away, Charles L. Evans, the president of the Federal Reserve Bank of Chicago, said in a virtual discussion with the Economic Club of Chicago on Wednesday. | The Fed’s commercial paper program, which will support the market for short-term business loans, was announced March 17 and is expected to be up and running April 14. Its corporate bond-buying programs, announced March 23, are still a few weeks away, Charles L. Evans, the president of the Federal Reserve Bank of Chicago, said in a virtual discussion with the Economic Club of Chicago on Wednesday. |
| There are also questions surrounding whom the programs will help. The Fed is expected to unveil additional efforts to assist state and local governments, and companies with less-than-perfect bond ratings are pushing to get some relief. | There are also questions surrounding whom the programs will help. The Fed is expected to unveil additional efforts to assist state and local governments, and companies with less-than-perfect bond ratings are pushing to get some relief. |
| The Fed’s programs could allow bigger companies to access the financing they need to make it through the coming weeks and months without shedding employees. Even with the support, the economy is expected to experience a deep shock — the central bank’s goal is to put it in place to snap back once the virus abates and Americans can return to work. | The Fed’s programs could allow bigger companies to access the financing they need to make it through the coming weeks and months without shedding employees. Even with the support, the economy is expected to experience a deep shock — the central bank’s goal is to put it in place to snap back once the virus abates and Americans can return to work. |
| The economy “will be less prosperous coming out of this crisis than we were going into it,” Mr. Evans said Wednesday. | The economy “will be less prosperous coming out of this crisis than we were going into it,” Mr. Evans said Wednesday. |
| Alan Rappeport contributed reporting. | Alan Rappeport contributed reporting. |