The Federal Reserve took emergency action this Sunday and slashed interests rate by a full percentage point to nearly zero to try to offset the impact of the coronavirus outbreak.
The interest rate ranging between of 0 to 0.25 percent means a return to the record lows were reached during the 2008-09 recession and the subsequent repercussions. The move is a clear sign that the Fed considers the coronavirus outbreak a severe economic risk that could slow the economy and possibly cause a large recession.Lowering rates makes borrowing cheaper, mortgage rates fall, APRs for credit cards fall and auto loans become cheaper. The move is meant to stimulate economic activity by making it cheaper to borrow and spend. While interest rates are at zero, they are limited to how low they can go, but the Fed is not powerless at the zero lower bound. The European Central Bank has reached modestly negative interest rates since June 2014, and the Bank of Japan has since January 2016.
The rates are likely to remain at the near zero rate until the central bank feels confident that the economy has resisted the recent events and is on track to achieve its maximum employment and price stability goals.
The coming days are expected to see extreme volatility and changes in the markets, therefore we suggest all traders implement careful trading whilst trying to capitalise on the markets.
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