US Central Bank Pulling Out Stops to Try to Calm Market Amid Coronavirus Crisis

FILE - The Federal Reserve building is pictured in Washington

As the global coronavirus pandemic wreaks economic destruction around the world, the U.S. government has taken a number of dramatic steps to keep money moving through the U.S. economy.

The Treasury Department on Friday announced that it would postpone the deadline for filing 2019 income taxes to July 15, from April 15. At the same time, the Federal Reserve has slashed interest rates and taken a number of steps that will allow it to continue pushing money into the hands of businesses and individual borrowers through all means available — some of which it has not yet activated.

So far, the Fed’s actions have done little to calm the stock market, which in the past week has wiped out the record gains achieved since President Donald Trump took office in January 2017. But the Fed and the Treasury still have a few more financial and monetary tools at their disposal to try to still the panic of investors.

The Treasury Department’s decision to delay the tax filing deadline could ease liquidity pressure on businesses and individuals who will be hit hard by the economic contraction the United States will inevitably suffer in the coming weeks and perhaps months.

The U.S. Treasury Department building at dusk, June 6, 2019, in Washington.

Similar tactics from 2007–08 crisis

Many of the moves the Fed has made so far to respond to the crisis will be broadly familiar to people who remember how the central bank handled the fallout of the 2007–08 financial crisis. The Fed kept interest rates as low as possible and launched a bond-buying program that was designed to help ensure that there was no cash shortage in the marketplace.

In that vein, the Fed announced on March 15 that it would cut the target for its benchmark interest rate to a range of zero to 0.25% and would purchase as much as $700 billion in Treasury and mortgage-backed securities in the coming months.

The ultra-low interest rate target will be a familiar one to most market participants, because it matches the level at which the Fed held rates for roughly seven years after the financial crisis, from late 2008 to late 2015. The rate change brings the U.S. central bank more closely in line with its European counterparts, some of which have had effectively negative rates since well before the onset of the novel coronavirus.

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Source: Rob Garver | VOA News