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1 1 (March 23, 2020)

handle is hein.crs/govcavs0001 and id is 1 raw text is: Researh Sevice Federal Reserve: Recent Actions in Response to COVID-19 Updated March 23, 2020 Coronavirus (COVID-19) has created significant economic disruption. In response, the Federal Reserve (Fed) has taken a number of steps to promote economic and financial stability involving the Fed's monetary policy and lender of last resort roles. Some of these actions are intended to stimulate economic activity by reducing interest rates and others are intended to provide liquidity to financial markets so that firms have access to needed funding. Actions to Lower Interest Rates Federal Funds Rate Traditionally, the Fed conducts monetary policy by changing the federal funds rate, the overnight interbank lending rate. In response to COVID-19, on March 3, the Fed reduced the federal funds rate from a range of 1. 5%-1.75% to a range of 1%-1.25% to stimulate economic activity. On March 15, it reduced the range to 0%-0.25%. Economists refer to this as the zero lower bound to signify that the Fed's traditional monetary policy tool has been exhausted at this point, and cannot be used to provide additional stimulus. This is the second time this interest rate has ever hit the zero lower bound-the first time was in 2008, during the financial crisis. At that time, the Fed developed two other tools to provide stimulus at the zero lower bound-forward guidance and quantitative easing. Both aim to reduce long-term interest rates which, unlike short-term rates, are not directly determined by the Fed, but are important for stimulating economic activity. These tools are being revived in response to COVID-19. Forward Guidance Forward guidance refers to Fed public communications on its future plans for short-term interest rates, and it took many forms following the 2008 financial crisis. As monetary policy returned to normal in recent years, forward guidance was phased out. It is being used again today. For example, when the Fed reduced short-term rates to zero on March 15, it announced that it expects to maintain this target range Congressional Research Service https://crsreports.congress.gov IN11259 CRS NStGHT Prepaimed for Mernbei-s and Committees 4 o. C- --q .. . . . . . . . ...----------------------------------------------------------------------------------------------------------------------------------------------------------------------

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