The FED and COVID-19

Near-Zero interest rate is one step the FED is implementing to try to help our economic state. Near Zero interest rates means that the rate banks pay to borrow from each other overnight is being cut. The FED is cutting it by a total of 1.5 percentage points since March 3, bringing it down to a range of 0 percent to 0.25 percent. Because the federal funds rate is a benchmark for other short-term rates, and also affects longer-term rates, it is aimed at lowering the cost of borrowing on mortgages, auto loans, home equity loans, and other loans along with reducing the interest income that savers get. Additionally, the FED is encouraging banks to lend. Direct lending to banks is changing. The FED lowered the rate that it charges banks for loans from 1.75 percent to 0.25 percent. These numbers are actually lower than during the Great Recession. These loans are typically taken out at the end of one day and repaid the following morning, but the FED has extended the terms to 90 days. The banks pledge things in an exchange for cash from the FED. The cash allows banks to keep functioning which means depositors can continue to withdraw money and the banks can make new loans. These two changes are examples of the things the FED is doing to help out during this pandemic! 

 

E-mail me when people leave their comments –

You need to be a member of UNH Economics Collective to add comments!

Join UNH Economics Collective