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Essentials of Monetary Policy

Federal Reserve (Fed). The Fed Rolls Out the Heavy Artillery

March 16, 2020
François Dupuis • Mathieu D’Anjou • Francis Généreux • Hendrix Vachon

The Fed clearly sees the COVID-19 epidemic as a real threat to the U.S. economy and the financial markets. It had already caught the markets by surprise on March 3 with a 50-basis point drop in its key rate. Yesterday, it struck again, this time with a force that it had never before used as quickly, and lowered its key rate by 100 points. In addition, it introduced an aggressive US$700B securities purchase program and a range of measures aimed at stabilizing the credit market. The surprise is even greater as the next meeting was scheduled to take place on Wednesday, March 18 to announce its monetary policy.