Federal Reserve Chairman Jerome Powell warned on Sunday that U.S. economic growth will likely be "weak" in the second quarter, but said central bank policymakers will not use negative interest rates to combat the coronavirus pandemic.
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Speaking at a Sunday evening press conference shortly after the Fed slashed interest rates to near zero and announced $700 billion of quantitative easing, Powell said the economy was in a "strong position" before the coronavirus began to wreak havoc.
But to contain and mitigate the spread of the virus, which causes a disease known as COVID-19, Powell said Americans need to reduce activities "and that will mean lower economic activity for a period of time to protect ourselves."
"The second quarter is probably going to be weak," Powell said. "After that, it’s very hard to say what the effects will be or how long they will last. That will depend, of course, on how fast the virus spreads."
In a stunning move, the Fed announced on Sunday that it was dropping interest rates by a full percentage point to a range of 0 percent to 0.25 percent. The cut essentially brings the nation’s interest rate to zero -- something that President Trump has repeatedly pressed for over the past year.
The Fed also said that it will buy at least $500 billion in Treasury securities and $200 billion in mortgage-backed securities over the coming months, a program known as "quantitative easing."
The global financial rout showed no signs of slowing last week. The Dow Jones Industrial Average suffered its worst week since October 2008, ending with a 12 percent drop and erasing the majority of its gains from 2019. U.S. equity futures plunged on Sunday after the Fed's announcement.
Dow Jones Industrial futures opened lower by 1,040 points, or 4.5 percent, while the S&P 500 and Nasdaq Composite were down 4.4 percent and 4.6 percent, respectively.
To help insulate the economy from the virus, which has caused a slew of companies in the U.S. and the world take drastic measures to slow the spread of COVID-19, including temporarily shutting down, Powell said the Fed plans to rely on "forward guidance and asset purchases" rather than negative rates.
"We do not see negative policy rates as likely to be an appropriate policy response here in the United States," Powell said.
Although the U.S. has always had positive interest rates, other countries have experimented with sending rates into negative territory in hopes of staving off a looming global slowdown. So far, five central banks have interest rates set below zero, including Japan, Sweden, Denmark, Switzerland and the European Central Bank.