Fed Meeting: FOMC Slashes Rates to Zero at a Sunday Emergency Meeting

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In an unprecedented Sunday emergency FOMC meeting, the Fed slashed the target federal funds rate by 100 basis points which moves rates back to near zero. The Fed also began a $700 billion quantitative easing program. After going all last week with no emergency FOMC meeting, I had assumed the Fed was going to wait until its regularly scheduled meeting on Tuesday and Wednesday before announcing policy actions. This Sunday meeting is a surprise, and I think it shows how serious the coronavirus pandemic is. Below are a few of the important excerpts of today’s FOMC statement:

The coronavirus outbreak has harmed communities and disrupted economic activity in many countries, including the United States. Global financial conditions have also been significantly affected.

[...]

The effects of the coronavirus will weigh on economic activity in the near term and pose risks to the economic outlook. In light of these developments, the Committee decided to lower the target range for the federal funds rate to 0 to 1/4 percent. The Committee expects to maintain this target range until it is confident that the economy has weathered recent events and is on track to achieve its maximum employment and price stability goals.

[...]

To support the smooth functioning of markets for Treasury securities and agency mortgage-backed securities that are central to the flow of credit to households and businesses, over coming months the Committee will increase its holdings of Treasury securities by at least $500 billion and its holdings of agency mortgage-backed securities by at least $200 billion.

[...]

In a related set of actions to support the credit needs of households and businesses, the Federal Reserve announced measures related to the discount window, intraday credit, bank capital and liquidity buffers, reserve requirements, and—in coordination with other central banks—the U.S. dollar liquidity swap line arrangements. [...]

After the FOMC statement, Fed Chair Jerome Powell gave a phone press conference and Q&A. One question asked to the Fed Chair was the possibility that the Fed will move the federal funds rate into negative territory, similar to actions taken by other central banks. Fed Chair Powell essentially said that it wasn’t a policy option. Let’s hope that holds.

The Fed Chair said that this emergency meeting will replace the regularly scheduled meeting this week, and that the FOMC will not be releasing its Summary of Economic Projections (SEP) which includes the “dot plot” until June since too much depends on how the coronavirus outbreak evolves.

One voting member dissented on the vote. Cleveland Fed President Loretta J. Mester thought the rate cut should only be 50 basis points.

Economist Tim Duy just released his review of this emergency meeting with a useful overview of the policy action along with his insights.

Effect on CD and Savings Account Rates

It’s hard to believe that we’re back at zero. Banks and credit unions had been in the process last week of responding to the 50bp rate cut on March 3rd. Now there’s another 100bp rate cut. Needless to say that we will likely see many large CD and savings account rate cuts this week.

With CD rates likely to fall fast this week, make sure you check the websites of the banks and credit unions before deciding to apply for a CD. My team will do our best to keep the DA rate tables up-to-date, but there will likely be some delay between what we show and the latest rates published by the bank or credit union. Also, make sure the bank or credit union will lock the CD rate when your online application completes. If they only lock the rate by the time they receive the funds, you may get a lower rate. For example, Ally Bank gives you 10 days of your account opening date to receive the funds. If the funds arrive after this, you’ll get the current interest rate for the day they receive the funds.

I’ll have more discussion on savings account and CD strategies on Monday.

The Pandemic and Future Interest Rates

In this coronavirus pandemic, there are many other more important concerns than interest rates. Hopefully, we’ll get through this pandemic with minimal loss of life and disruption. In a best case scenario, things will get back to normal in a few months and the economy will bounce back strongly. I think it’s likely that rates will remain at zero for at least the next year even if this best case scenario occurs. The Fed said today that it will want to be “confident that the economy has weathered” this pandemic before it returns to rate hikes.

For now, let’s keep our thoughts and prayers for everyone’s health and safety in this pandemic.


Comments
enduser
  |     |   Comment #1
Banks accounts are now officially piggy banks earning no interest. A punch in the gut to savers.
jimdog
  |     |   Comment #9
Yes, we can thank the cental banksters for this.
DA123
  |     |   Comment #2
Stock market futures promptly dropped over a thousand points, triggering the circuit breaker that stops further declines.
Fannie Gay
  |     |   Comment #4
Futures have daily limits stocks have circuit breakers.
Kaight
  |     |   Comment #8
DA123

There is a measure of respect remaining in America for the opinion of the Fed. This immense, early, rate cut is a signal from the Fed to all of us that, in their opinion, the situation in our country is dire. Hence, additional stock market selloff is not a surprise.
gregk
  |     |   Comment #3
I wonder how RCA rates will hold up. For me they've been a 3% mainstay for liquid funds I'd hate to see collapse, but a percentage point decline on many of the leaders seems not so unlikely.
jstern
  |     |   Comment #20
gregk, what does "I wonder how RCA rates will hold up. " mean ??
thanks
Matt
  |     |   Comment #22
RCA = Rewards Checking Account
Robb
  |     |   Comment #71
@gregk...just FYI pulled in another deposit to MACU this morning and transferred it to my add-on CD there. All good there so far.
gregk
  |     |   Comment #73
Did a (small) addition myself yesterday, - $10,000, and like with you it went smoothly. I've 75K tied up in a Chase bonus offer until March 31rst, at which point will wire to my MACU share and then transfer. Only then will I rest easy.
mattp
  |     |   Comment #5
One quick way to lock down rates is potentially to open a CD and lock down the rate online today and fund within 30 days if CDs are maturing in the next few weeks.
anony
  |     |   Comment #10
That's exactly what I did at the beginning of the week, as I have CDs maturing end of march into april. 30 days to fund, with locked in rates. Now they aren't great rates, but better than anything current.

I had considered breaking some CDs, but doing it this way I can just wait.
Daniel2000
  |     |   Comment #66
You can't do this with any CD can you? It must be an add-on CD ...?
mffarrell
  |     |   Comment #6
What a stupid move! Powell caved-in to tRump%’s impulses. He should resign!
Kaight
  |     |   Comment #14
There is no question whatsoever that Trump has jawboned and bullied the Fed mercilessly in an effort to force them to cut interest rates. But to be honest, I would feel better if I thought this remarkable cut had more to do with Trump's big mouth and less to do with the Fed's forthright assessment of America's current situation and prospects going forward, based on their first class analytical tools.
bbb
  |     |   Comment #29
We are well on our way to his coveted negative rates.
Kaight
  |     |   Comment #7
Back when this happened circa 2008 I had a single add-on CD with NWFCU; just one. It held up and saved my butt for the first two to three years (beyond that, of course, I was toast along with many other savers). Today I have at least four add-on CDs spread among different financial institutions. I certainly hope some of those are able to survive this astonishing Fed rate cutting event, which has taken me by surprise. The Fed looks out for the stock market, but surely not for us savers. Those who did not provision themselves with add-on CDs back when it was possible are in a world of hurt 'bout now.
jimdog
  |     |   Comment #11
You got that right. The FED does not care one bit about prudent savers. It's all about their speculating banks they take care of. When they lose money, they bail them out.
anony
  |     |   Comment #13
There is still one add-on available that I know of at Navy. Currently 2.25%... not great, but that may look great very soon. I got that 2 weeks ago as my last resort option.
Sylvia
  |     |   Comment #17
Bank5 Connect has a 2 year add-on that requires only $500 to open. The 1.90% APY (down from 2.10% a few weeks ago) may now be worth a second look. Sad. Kaight, I remember those days, when NWFCU had nice add-on's. It's been years since their last decent one.
111
  |     |   Comment #69
So yesterday I push $500 to my Bank5 Connect Checking in preparation for creating a new add-on CD today. I see funds available this morning, and lo and behold, they dropped the rates a couple of hours ago! I called; they won't grandfather me in.

I've got a couple of their 2.7 % add-ons from before, and others, but YIKES - things are moving fast.
Sylvia
  |     |   Comment #70
Sorry to hear that, 111. I was deliberating on the CD myself. When rates were rising, Bank5 never budged. Didn't know they had that kind of speed in them.
111
  |     |   Comment #28
Kaight , Sylvia - Yes, I remember the Northwest add-on CDs from back then. They were 2-year add-ons, and as rates moved down, I found that the "sweet spot" to add-on funds was generally 1 year from maturity. After a while it became a CD ladder of sorts - every 6 months, buy one add-on CD for $500 (the minimum), sell one matured CD, and use those funds to add-on to another CD that was 1 year old. Rinse and repeat 6 months later.

I've noticed, though, that Northwest has never since offered add-on terms that good. They probably got burned a bit.
Predatory Depositor
  |     |   Comment #15
If the Fed looks out for the stock market how come the stock market dropped 25%?

Also, if the Fed looks out for the stock market, and the system is rigged, why would you keep investing in the shortchanged investment instead putting your money in the stock market for the guaranteed win? Why keep choosing the loser when you know it's going to lose and then complaining about it?
#72 - This comment has been removed for violating our comment policy.
Cracker
  |     |   Comment #12
The fed once again is flailing around uselessly pretending they have any influence in stopping the spread of a virus by cutting interest rates. The best thing they could have done is absolutely nothing. All this does is incite more unjustified panic. The futures market is showing this by its fallback after Friday's gains.
c_q
  |     |   Comment #16
I don't think the fed is trying to stop the spread of virus - the just want to make sure the banking system doesn't collapse due to the virus knocking so much economic activity out of commission.

However, yes the futures market totally tanked, hitting the 5% limit down in 15 mins, where it has been pegged at ever since.

My hope is that due to the more extreme virus prevention measures happening all over the US the virus stops spreading and we see no new cases after a month or two, then things can get back to normal in relatively short order and we see all these issues revert.
JWARREN
  |     |   Comment #24
Concur with your first statement; however, not about "virus prevention measures?" It seems that goal to “flatten" the bell curve of infections suggests that infections are not likely to be prevented but that we hope to implement measures that may prevent many persons from getting infected at the same time, and thus, avoid crashing the health care system.
Predatory Depositor
  |     |   Comment #18
I agree that the cause of the financial crisis is a medical crisis, and a medical remedy is the solution today financial problem, not the other way around. I really don't think there's anything the Fed can do. However, I still think the rate cut was justified because the idea is that after the virus goes away you want things to come back as quickly as possible. And this will help that happen.
bbb
  |     |   Comment #31
I understand and respect this outlook. But my own impression is that rates won't ever normalize at this point. They'll stay at zero or go negative, as that is the push from leadership.
Mak
  |     |   Comment #46
The cause of the financial crisis is the artificial balloon the fed has been blowing up for ten years was now popped by the coronavirus pin.
c_q
  |     |   Comment #19
I was surprised trump was still harping on 'negative rates like other countries have'. That didn't really do much good in europe and japan, I don't see why we need to even consider that.

Really fiscal stimulus is needed now - ideally money in people's pockets, like reduced income taxes and/or payroll taxes for a month or two. and push off the april 15 tax filing and payment due date - some states have already done this for their income taxes.
jstern
  |     |   Comment #21
gregk, what do you mean by "how RCA rates will hold up" ? thanks
gregk
  |     |   Comment #23
"RCA" refers to Rewards Checking Accounts. These are liquid accounts that in some cases offer an attractive interest rate (3% or more, - at least up to now) on capped balances (typically between 15K and 25K) if certain monthly requirements are met (such as 10-12 debit card transactions, and an ACH transfer or Direct Deposit). This blog lists the various offerings along these lines on its bi-weekly "Best Bank Accounts" thread, in many cases with links to specific reviews.
Shelby
  |     |   Comment #25
So the fed moved the rates to 0...it was obvious for quite a while where the fed funds rate was heading. Now we move through the current crisis which is a buying opportunity for the stock position part of your portfolio ( XOP the oil and gas ETF as well is worth looking at) then wait for rates and equity prices to move up again over the next 1-3 year time horizon...also as rates move up so will the rates on CD's. When will the bottom hit in this panic selling...nobody knows.
Duck
  |     |   Comment #26
2nd that Shelby I was buying Friday an will be again today.Yes there will be some fallout an short term turmoil but I have never seen this before an I ain't no spring chicken I just live off investments an need the income. Now I am not sayin that you should break CD's or anything but I see it as a nice portfolio building opportunity
Bob
  |     |   Comment #27
Punish the savers. No
rmal procedure since 2008
#30 - This comment has been removed for violating our comment policy.
max100
  |     |   Comment #32
STOCKS DOWN RATES DOWN NOT GOOD .
milty
  |     |   Comment #33
I think the Fed should have nudged rates up 50bps to bring us back to 03/18 rather than 12/08. Why? Because IMO this is finally an opportunity to normalize rates and let the market stand or fall (given its recent major correction) on its own merits. I don't believe with Fed rates at 1.75 vs 0.25 that the lower rate would make any significant difference on curtailing this virus. Also, I thought I saw that the latest CPI rate had crept over 2% . . . maybe I misinterpreted, but if not, that does not seem to jibe with what Powell is arguing.
Over
  |     |   Comment #34
This is the end,,,,,,,,Forget recession. This is a major depression. It's over.
Over
  |     |   Comment #35
I have a 3% add on CD at GTE,,,,,,,,,Why do I think it's not going to do me any good. I have a feeling everything is going down.
#36 - This comment has been removed for violating our comment policy.
kcfield
  |     |   Comment #37
With the stock market down 10% already today, it seems clear that Rate Zero is not allaying fears about Ground Zero.
Over
  |     |   Comment #39
No. Think there is officially no place to put your money. This is a nightmare.
Donkey
  |     |   Comment #42
Is it possible money market and savings accounts could have negative yields?
Over
  |     |   Comment #45
Could be. But I will NEVER put my money in a bank for a fee. Keep it under my mattress before I do that.
gregk
  |     |   Comment #47
Bank retail customers would never be subject to negative rates. Even in Europe, except on very large deposits in some rare cases that has been taboo. Negative rates (when they occur) typically apply only to deposits member banks keep on deposit with the Central Bank, - and Government issued Securities.
Aunt Amy
  |     |   Comment #51
Some foreign banks have subsidized poor clients, by not charging negative interest rates.

Nobody knows what will happen.
CuriousDave
  |     |   Comment #62
The nominal, posted rates may "never" go below zero, but if inflation (low as it may be) is factored in right now, U.S. deposit rates are already effectively negative. Also, if human experience is anything to go by, belief in terms like "never" and "always" can be dangerous to our health.
Mak
  |     |   Comment #48
Trump was bragging about the 200 point rally, is he bragging about the 2700 point drop today? Pitiful action out of a president imo.
Mak
  |     |   Comment #49
*2000 point rally
Mak
  |     |   Comment #50
*3000 point drop
#54 - This comment has been removed for violating our comment policy.
mix
  |     |   Comment #52
I'm a buyer of the S&P 500 index when it reaches 1500-1600 points.
Cracker
  |     |   Comment #58
I wouldn't be buying ANYTHING until there are at least 3 consecutive up days in the market. Things are way too volatile now. I'm riding it out, but neither buying nor selling at the moment.
#59 - This comment has been removed for violating our comment policy.
Mak
  |     |   Comment #61
Today's low was the same low as the drop in late 2018 so could rally but if it falls lower from here I'm looking in the 40% to 50% down from the top to add.
deplorable 1
  |     |   Comment #53
Personally I think the FED over reacted on all the rate cuts starting with the ones for the trade war fears. They were trying to pump the stock market but just ended up adding to the fears over the corona virus and causing more panic. Now we are right back to the 0% rates again which sucks for us savers. The MSM over hyping and scaring people is the root cause of all of this from the stock drop to the interest rate cuts. If you think this being an election year has nothing to do with this then you haven't been paying attention for the last 3 years.
Mak
  |     |   Comment #56
Holy cow........ unbelievable.
Cracker
  |     |   Comment #57
They certainly did. Their "emergency" 1% rate cut did nothing to help. On the contrary, it ended up causing more panic, thus the resulting market crash of today.
Mak
  |     |   Comment #60
Everything is being shutdown, our economy is 70% consumer driven.... market is trying to price it in. imo
deplorable 1
  |     |   Comment #63
The market seems to be pricing in the zombie apocalypse. Sure we will see a slowdown but the economy was quite strong just prior to this virus scare(referencing the last jobs report). Once this blows over and it will the market will recover. Back in 2008 there was a real financial reason for the collapse this is 100% fear based IMO.
Unless people start coming back to life with a hunger for grey matter I'm not going to panic.
Mak
  |     |   Comment #65
FYI I always have a % of my money in the market, yes it will come back but at what cost... what's a little more debt? I'll be canceling your vote this election because I don't want any president that begs for negative rates. Btw your opinion hasn't done so well in the past why would that change now.
#75 - This comment has been removed for violating our comment policy.
Milty
  |     |   Comment #76
@#75: I wonder how much slack you cut the administration back in 2008? ;-)
#77 - This comment has been removed for violating our comment policy.
Mak
  |     |   Comment #78
Dep1 said "I don't like all these massive spending bills, QE or bailouts either but the government is in crisis mode"

Supposedly your hero said we were in the best economy ever so why was the debt still going up? The debt is supposed to drop when we have "the best economy ever". Maybe Trump can build a wall around every home to save us....:)
Bowman
  |     |   Comment #55
Zero rates are great if you are a highly leveraged real estate investor. Average folks, not so much. Sad.
Daniel2000
  |     |   Comment #67
Can somebody tell me the pros and cons of a step-up CD?
alan1
  |     |   Comment #68
Charles Reichlin wrote an article that appeared on depositaccounts.com in 2016, "Personal CD Investing: Step-Up and Step-Rate CDs". I'd say that's an excellent place to start.
https://www.depositaccounts.com/blog/personal-cd-investing-stepup-steprate-cds.html

(This website has also published other articles on "step-up" [a/k/a "bump-up"] CDs.)

Also, this question recently came up in the "Ask the Community" section of the forum.
https://www.depositaccounts.com/community/ask/41200-step-cds.html
Daniel2000
  |     |   Comment #74
Ok so take-away is step-rate = good, step-up = mediocre/not that great. Thank you - very informative.
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