Fed Funds Rate Pinned at Zero

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The Federal Open Market Committee has voted to lower the target range for the federal funds rate to 0.0%-0.25%, with the intention to keep the rate at that level until the economic effects of the coronavirus outbreak recede.

“The committee expects to maintain this target range until it is confident that the economy has weathered recent events and is on track to achieve its maximum employment and price stability goals,” the Fed said in a statement.

“The effects of the coronavirus will weigh on economic activity in the near term and pose risks to the economic outlook,” the Fed said. “This action will help support economic activity, strong labor market conditions and inflation returning to the committee’s symmetric 2 percent objective.”

The Fed further noted that in the coming months, 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, saying that “the smooth functioning of markets for Treasury securities and agency mortgage-backed securities [are] central to the flow of credit to households and businesses.”

The committee will also reinvest all principal payments from the Federal Reserve’s holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities.

“This is an all-out measure to prevent a recession and fight the fear that is blanketing the country,” said National Association of Realtors Chief Economist Lawrence Yun, in a statement.

“During the last recession, real estate was on wobbly ground with loose lending and too much supply,” he explains. “Today, there is no subprime lending and too little supply. The real estate market will hold on much better.”

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