March 2020 National Economic Outlook

Fed Pulls Out All of the Stops to Fight Viral Recession

Executive Summary

The Federal Reserve has taken a number of highly aggressive steps to fight the recession that has started in the U.S. from the COVID-19 outbreak and the public health response to contain it. 

In an emergency meeting held Sunday March 15, the Federal Open Market Committee cut the federal funds rate a full percentage point, to a range of 0.00 to 0.25 percent. 

This followed an emergency 0.50 percentage point cut in the funds rate on March 3. The funds rate, effectively at zero, is now back to where it was from November 2008 to December 2015, in the aftermath of the financial crisis and Great Recession.

In the wake of the COVID-19 outbreak the Fed has also taken numerous other steps to support U.S. economic growth, and in particular the flow of credit. On March 23 the FOMC said that it will use “its full range of authorities to provide powerful support for the flow of credit to American families and businesses.” 

Steps the Fed has taken in March to support the flow of credit include open-ended purchases of Treasuries and mortgage-backed securities, a restart of quantitative easing; direct purchases of commercial paper; direct lending to primary dealers and financial investors in prime money market funds; direct purchases of municipal bonds; and direct purchases of highly-rated corporate bonds in both the primary and secondary markets. 

The Fed has also reestablished a financial crisis-era facility that allows issuers of highly-rated asset-backed securities to borrow against them from the Fed, to support sales of asset-backed securities and the underlying lending that those securities fund.

Initial claims for unemployment insurance jumped to 3.283 million in the week ending March 21 as businesses undertook massive layoffs in response to the COVID-19 outbreak. This is the highest level of claims on record by far, far surpassing the previous record of 695,000 in the 1982 recession, and the Great Recession peak of 665,000 11 years ago. 

The massive increase in claims for the week ending March 21 is the first piece of hard evidence that COVID-19, and the public health measures taken to contain it, are wreaking unprecedented havoc on the U.S. labor market. Claims were near a 5-decade low just two weeks ago, at 211,000 in the week ending March 7, and then jumped to 282,000 in the week ending March 14 as firms first started laying off workers because of COVID-19. 

Our economics team is consistently analyzing and forecasting national, regional and global economic trends.

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