The swifter-than-expected rate cut is designed to prevent the kind of credit crunch and financial market disruptions that occurred the last time the Fed had to cut rates all the way to the bottom: The Fed last cut rates to zero during the global financial crisis just over a decade ago.
The Fed last lowered currency swaps during the European debt crisis in 2011. The move makes borrowing US dollars cheaper for banks around the world. Swapping currencies, particularly dollars, is a staple of global financial transactions.
The coordinated move will lower the cost of short-term borrowing for banks around the globe, and it could also keep the global economy clear of an all-out credit crunch similar to the one the world’s economies encountered a decade ago.
The bond and mortgage security purchases are tools the Fed previously used during the most recent recession. They helped to shore up housing and US government debt — two crucial markets that keep the gears of the American financial system turning.
The Fed could, in theory, take rates negative, as some other central banks have, but Federal Reserve Chairman Jerome Powell has resisted that idea. The Fed said Sunday it would hold rates steady near zero until it is confident that the US economy pulls out of the coronavirus-fueled economic quagmire.