Fed Minutes Show Concern as Outlook 'Deteriorated Sharply' Due to Coronavirus

The Fed releases minutes of its March 15 emergency meeting at which 'all participants viewed the near-term U.S. economic outlook as having deteriorated sharply in recent weeks and as having become profoundly uncertain.'
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The Federal Reserve said Wednesday in its minutes from its emergency March 15 meeting that "all participants viewed the near-term U.S. economic outlook as having deteriorated sharply in recent weeks and as having become profoundly uncertain." 

The Fed lowered interest rates at the meeting to essentially zero.

The central bank on March 15 also announced a $700 billion quantitative-easing program, saying the coronavirus outbreak "has harmed communities and disrupted economic activity in many countries, including the United States."

The minutes said, "Many participants had repeatedly downgraded their outlook of late in response to the rapidly evolving situation. All saw U.S. economic activity as likely to decline in the coming quarter and viewed downside risks to the economic outlook as having increased significantly."

In light of the sharply increased downside risks that the pandemic poses to the economic outlook, the minutes said, "the participants noted that risk-management considerations pointed toward a forceful monetary policy response, with the majority favoring a 100 basis point cut that would bring the target range to its effective lower bound."

A few of the participants, the minutes said, "preferred a 50 basis point cut at this meeting and noted that such a decision would provide support to economic activity in the face of the anticipated effects of the coronavirus."

"These participants preferred to wait until there was greater assurance that the transmission mechanism of monetary policy via financial markets and the supply of credit to households and businesses was working effectively," the minutes said.

The meeting was held remotely on a Sunday afternoon. All but one member voted in favor of the 75-basis-point rise, with Cleveland Fed President Loretta Mester offering dissent. She said she voted for 50 basis points because she wanted to give the Fed more flexibility with policy.

"Members noted that they would continue to monitor the implications of incoming information for the economic outlook, including information related to public health as well as global developments and muted inflation pressures, and that the Committee would use its tools and act as appropriate to support the economy," the minutes said. 

The Fed has since taken measures to fund short-term borrowings of companies in the commercial-paper market; and to clean up the balance sheets of dealer banks and money-market mutual funds by accepting a wide range of securities as collateral in exchange for cash loans.

In addition, the Fed has announced new lending programs to extend support to large companies by buying longer-term corporate debt.