The Fed unveils an emergency program to keep credit flowing.
The Federal Reserve cut interest rates to near-zero on Sunday, in its second emergency measure this month amid increasingly dire predictions about the economic impact of the coronavirus.
The central bank also said it would buy up huge amounts of government and mortgage-backed debt.
“The coronavirus outbreak has harmed communities and disrupted economic activity in many countries, including the United States,” the central bank said in a statement on Sunday. “The Federal Reserve is prepared to use its full range of tools to support the flow of credit to households and businesses.”
The Fed cut its benchmark interest rate by a full percentage point, to a range of 0 to 0.25 percent, and said it would increase its holdings of Treasury securities by at least $500 billion and its holdings of government mortgage-backed securities by at least $200 billion “over coming months.”
The moves, reminiscent of steps the central bank took during the 2008 financial crisis, are aimed at making it easier for banks to lend money to businesses facing a steep and sudden drop in revenue as the virus forces them to curtail their activity or shut down.
Economists have been cutting forecasts for economic growth for weeks, as they consider how store closings, falling consumer spending and decreased travel will affect the United States. On Sunday, economists at Goldman Sachs said they now expected the American economy, the world’s largest, would record zero growth in the first quarter, and would shrink in the second quarter.
Even with monetary and fiscal stimulus measures, “these shutdowns and rising public anxiety about the virus are likely to lead to a sharp deterioration in economic activity in the rest of March and throughout April,” Goldman’s economists wrote in a research note.
Financial markets have plunged in recent weeks as investors fixated on potential costs of the coronavirus outbreak. Stocks are down some 20 percent from their Feb. 19 high.
On March 3, the Fed cut interest rates by a half percentage point in an emergency announcement. The U.S. stock market managed to rally only for roughly 15 minutes before falling sharply once again and finishing the day down nearly 3 percent.
The volatility has only grown since then, with the S&P 500 posting its worst-single day loss since the Black Monday crash of 1987 on Thursday, before posting an extraordinary 9.3 percent gain to close the week on Friday.
The wild swings in prices extend well beyond stocks. At times last week, the market for Treasuries showed signs of trouble — a worrisome indicator because U.S. government bonds are considered the safest spot for investors to park their cash in times of stress.
An economic hit from ‘all sides.’
For weeks, forecasters have warned of the coronavirus’s potential to disrupt the American economy just as it has done elsewhere. But there was little hard evidence beyond delayed shipments of goods from China and stomach-churning volatility in financial markets.
Now the effects are showing up in downtown nightspots and suburban shopping centers from coast to coast.
Not since the attacks of Sept. 11, 2001, has a crisis enveloped so much of the economy so quickly. Broadway is dark. The college basketball tournaments are canceled and professional sports are on indefinite hold. Conferences, concerts and St. Patrick’s Day parades have been called off or postponed. Even Disneyland — which stayed open through a recession a decade ago that wiped out millions of American jobs and trillions of dollars in wealth — is shuttered.
“This hits the heart of the economy, and it hits the economy on all sides,” said Diane Swonk, chief economist at Grant Thornton. “It’s not just that we’re slowing down things. We’re actually hitting the pause button, and there is no precedent, there is no mold for that.”
Hollywood may have just had a historically bad weekend.
Seemingly every aspect of American life has been disrupted by the coronavirus pandemic, and the weekend ritual of watching a movie in the dark sitting with strangers has been no exception. Most cinemas in the United States remain open, with the two biggest chains, AMC and Regal, reducing seating capacity in auditoriums by 50 percent so that people could leave at least one empty seat between them. But fears about the coronavirus kept the masses at home: Domestic ticket sales totaled about $55.3 million, a 44 percent drop from last weekend, despite three new films — “Bloodshot,” “The Hunt” and “I Still Believe” — arriving in wide release.
It was the worst period for movie theaters in two decades, according to Comscore, which compiles box office data. The next lowest weekend was Sept. 15 to 17 in 2000, when ticket sales totaled $54.5 million and the primary draws were holdovers like “The Watcher,” a serial-killer movie, and “Nurse Betty,” a dark comedy starring Renée Zellweger. In today’s money, however, the 2000 weekend generated roughly $83 million in ticket sales.
Why stock prices surged on Friday.
Just 30 minutes before trading on Wall Street came to a close on Friday, President Trump declared a national emergency and said he’d speed up testing for the coronavirus in the United States with the help of private companies.
Speaking outside the White House — surrounded by chief executives from a number of companies — Mr. Trump said Google would help create a website to screen coronavirus cases, and Walmart, Target and others would help with testing. (The president oversold that Google site.)
Investors had been waiting all week to see Washington take action, so they didn’t wait to hear the finer details: Stocks surged some 6 percent as the president spoke about the plans, to end the day up 9 percent.
Catch up: Here’s what else is happening.
Retailers started closing stores: Apple said it would shutter more than 450 stores across 21 countries for two weeks. Nike said it would shut all of its stores in the United States, Canada, Western Europe, New Zealand and Australia for the same period.
Spain and France announced drastic restrictions: On Saturday, Spain ordered all citizens to confine themselves to their homes — and to leave only to buy food, go to work, seek medical care or assist the elderly and others in need. France announced the closing of all “non-indispensable” businesses as of midnight, including restaurants, bars and movie theaters.
Saudi Aramco’s profit fell. The world’s largest oil company said on Sunday that its profit last year fell more than 20 percent, primarily because of lower oil prices.
Volkswagen will temporarily close a factory in Chattanooga, Tenn. The factory will close for the day on Monday as managers assess how to handle a shortage of workers who have child care problems.
Jeanna Smialek, Ben Casselman, Jack Ewing, Stanley Reed, Jack Nicas, Liz Alderman, Brooks Barnes and Matt Phillips contributed reporting.