The Fed will pump another USD 700 billion into the market and reset interest rates

Banks may lower their minimum reserves ratio to zero, and Federal Reserve will pump another USD 700 billion into the economy. These are the most important decisions of the Fed, which were unexpectedly announced on Sunday, March 15.03.2020, XNUMX. This is to stimulate the economy, which is suffering from the coronavirus epidemic.

As a result of the Fed's decision:

• the reference ratio has been reduced by a full percentage point, virtually to zero;
• banks will be able to take additional loans for 90 days;
• mandatory reserve ratios may fall to zero;
• interest on liquidity swap contracts in USD was reduced by 25 basis points.

The fight for maximum employment and optimal inflation

The Fed informs in the commentary to the announcement that interest rates will be around zero for as long as it is needed.

“Until we are confident that the economy has survived the latest events and is on track to meet the maximum employment and price stability targets. This action will help support economic activity, stability in the labor market and the return of inflation to the symmetrical 2% target. " - quotes a message from Bloomberg.

These extraordinary actions are the result of huge drops in the stock market, which we could observe last week. As a result, the market is currently definitely bearish and any, even small information causes an avalanche of sales. Investors are afraid that the limitations in the operations of companies, resulting from fear of the spread of coronavirus, will cause a decrease in GDP practically all over the world.

The Fed had earlier - last Thursday - started to ease tensions on the market. It was decided to increase the liquidity in the market, inter alia, by purchasing American securities. The modus operandi is almost identical to that used during the last financial crisis. We should also remember that less than two weeks ago interest rates were lowered by half a percentage point.

Chart EUR / USD, H1 interval. Source: xNUMX XTB xStation

The Sunday opening starts with a gap of about 70.0 pips on Eurodollar. We see a more decisive reaction on USD / JPY, where the price gap is 100.0 pips, and on GBP / USD as much as 138.0 pips.

New Zealand cuts interest rates

Representatives of banks in New Zealand decided to do the same. There, the main interest rate was reduced to a record low of 0,25%. The economy of New Zealand also suffered a lot due to the coronavirus pandemic. Especially companies from the broadly understood tourist sector suffered. Reductions in interest rates on housing loans are also planned.