'Swift and Decisive' 2020 Fed... Different from 2008

Half of Planned Purchases Made in First Week of Quantitative Easing
Following Zero Interest Rate, Announcements Continue for Currency Swaps, CP Purchases, and MMF Support

[Image source=Reuters Yonhap News]

[Asia Economy New York=Correspondent Baek Jong-min] The U.S. Federal Reserve (Fed) is being praised for rapidly responding to the crisis caused by the novel coronavirus infection (COVID-19) by consecutively implementing measures such as quantitative easing (QE) and expanding currency swaps. This reflects a serious recognition of the impact on not only the U.S. but also the global economy, and there is also an interpretation that the experience gained during the 2008 global financial crisis recovery process is acting as a learning effect.

On the 19th (local time), the Wall Street Journal (WSJ) reported that the Fed announced on the 15th a $500 billion purchase of government bonds as part of quantitative easing, and plans to purchase $275 billion worth just this week. This means that more than half of the initial plan will be executed in the first week. WSJ evaluated, "This means the Fed is responding as quickly as the spread of COVID-19."

The Fed has already held two unscheduled monetary policy meetings this month, lowered interest rates to zero, and poured out measures such as purchasing commercial paper (CP) and supporting the money market fund (MMF) market. Externally, earlier this week, it agreed with the European Central Bank (ECB), Bank of England (BOE), Bank of Japan (BOJ), Bank of Canada (BOC), Swiss National Bank (SNB), and others to lower interest rates on dollar swaps, and on this day signed currency swaps with nine countries including South Korea.

The Fed's recent actions are clearly different from those during the financial crisis. The Fed lowered interest rates to zero in December at that time. It was three months after the full-scale economic crisis began with the collapse of Lehman Brothers in September. The first round of quantitative easing started another three months later in March 2009. In contrast, this time, zero interest rates and quantitative easing were implemented simultaneously. The Fed is also sending signals to the financial sector to actively provide funds to corporations and households by easing various financial regulations introduced after the financial crisis.

There is an assessment that the Fed feels a sense of crisis about the current situation and recognizes that rapid response is essential. WSJ also predicted the possibility that the Fed will take additional measures such as further asset purchases.

The Hill, a U.S. congressional specialized media, emphasized, "While the Fed's swift response to the COVID-19 situation is commendable, more needs to be done."

This content was produced with the assistance of AI translation services.