In an emergency move, the Federal Reserve announced this Sunday that it is dropping its benchmark interest rate to zero and launching a new round of quantitative easing.
The QE program will entail $700 billion worth of asset purchases entailing Treasury’s and mortgage-backed securities. This is its second emergency rate cut in response to economic concerns related to the coronavirus, opting to slash rates to a range of 0-0.25 percent.
The central bank of the U.S. also known as the Fed – is charged by Congress with maintaining economic and financial stability. Mainly, it tries to keep the economy afloat by raising or lowering the cost of borrowing money, and its actions have a great deal of influence on your wallet.
This action incentivizes businesses to invest and hire more, and it encourages consumers to spend more freely, helping to propel growth. On the contrary, when the economy looks like it may be growing too fast, the Fed may decide to hike rates, causing employers and consumers to tap the brakes on their financial decisions.
The Fed added in its statement that it “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.”