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The Fed’s Decision and What It May Mean for Investors

Wells Fargo Investment Institute – March 15, 2020

Policy Announcement

The Federal Open Market Committee (FOMC) decided to cut the federal funds rate by 100 basis points (1.00%) to 0.00%–0.25% on Sunday, March 15. The Federal Reserve (Fed) also announced that it will increase its holdings of Treasury securities by at least $500 billion and its holdings of agency mortgage-backed securities by at least $200 billion. The Fed reduced the primary credit rate by 1.50% to 0.25%. Depository institutions may now borrow from the discount window for periods as long as 90 days. In addition, the Fed is coordinating action with global central banks to increase dollar swap liquidity, including 84-day term dollar swap offerings. These actions came as an emergency move in an effort to help protect the U.S. economy from coronavirus repercussions.

Download the Key Takeaways (PDF)

Stated Reasons

  • The novel coronavirus (COVID-19) has harmed communities and disrupted economic activity in many countries, including the United States.
  • Global financial conditions have been significantly affected. Most recently, the energy sector has come under stress.

Looking Forward

  • The Committee expects to maintain this target range (0.00%-0.25%) until the Committee is confident that the economy has weathered recent events and is on track to meet its maximum employment and price stability goals.
  • The Committee will continue to monitor the implications of incoming information for the economic outlook, including information related to public health—along with global developments and muted inflation pressures—and will use its tools and act as appropriate to support the economy.

What Else?

  • To support the smooth functioning of markets for Treasury securities and agency mortgage-backed securities that are central to the flow of credit to households and businesses, over coming months, the Committee will increase its holdings of Treasury securities by at least $500 billion and its holdings of agency mortgage-backed securities by at least $200 billion.
  • These Fed actions are significant and should support financial market liquidity. By taking these actions, the Fed has fewer tools to further respond in the future, if needed. In our opinion, additional fiscal actions would be most beneficial to the economy.