The Federal Reserve Open Market Committee voted to keep its benchmark interest rate in the 0% to 1/4% range for the duration of the public health emergency and to "using its full range of tools to support the U.S. economy in this challenging time, thereby promoting its maximum employment and price stability goals."
The FOMC statement said, "The coronavirus outbreak is causing tremendous human and economic hardship across the United States and around the world. The virus and the measures taken to protect public health are inducing sharp declines in economic activity and a surge in job losses. Weaker demand and significantly lower oil prices are holding down consumer price inflation. The disruptions to economic activity here and abroad have significantly affected financial conditions and have impaired the flow of credit to U.S. households and businesses."
The committee warned the ongoing public health crisis will "weigh heavily on economic activity, employment, and inflation in the near term, and poses considerable risks to the economic outlook over the medium term."
It added, "To support the flow of credit to households and businesses, the Federal Reserve will continue to purchase Treasury securities and agency residential and commercial mortgage-backed securities in the amounts needed to support smooth market functioning, thereby fostering effective transmission of monetary policy to broader financial conditions. In addition, the Open Market Desk will continue to offer large-scale overnight and term repurchase agreement operations. The Committee will closely monitor market conditions and is prepared to adjust its plans as appropriate."
Parsing the statement, Mike Fratantoni, chief economist at the Mortgage Bankers Association, said "The Federal Reserve has pulled out all the stops to help the economy and financial markets weather the current pandemic. In their statement today, they made clear that supports would remain in place until the economy regains full employment and inflation trends return to normal. Of note to the mortgage industry, while they did not specify a pace for agency MBS and CMBS purchases, they did highlight that, ‘the Federal Reserve will continue to purchase Treasury securities and agency residential and commercial mortgage-backed securities in the amounts needed to support smooth market functioning.’ It is clear they want their actions to result in lower rates for mortgage borrowers, and recognize that this can only happen in the context of orderly markets. We expect that they will continue to modulate their purchases over the next few weeks, so long as markets remain stable.”
