The Fed on Tuesday announced that it was reducing its target for the federal funds rate to between zero and 0.25 percent, lowest on record, down from 1 percent, a level that was already the lowest target rate in a half century.
And the central bank pledged to use "all available tools" to fight the current downturn. It said it was likely that rates would be kept at "exceptionally low levels" for some time to come.
Commercial banks responded immediately to the Fed announcement by cutting their prime lending rate, the benchmark rate for millions of consumer and business loans, by three-fourths of a percentage point to 3.25 percent, pushing it to the lowest point in more than a half century.
Demand for government bonds surged. The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 2.27 percent from 2.53 percent late Monday. The yield on the 30-year fell to 2.78 percent from 2.99 percent late Monday, it's lowest level in the 31 years since regular auctions of the securities started in 1977. Rates for other Treasuries of shorter maturity also fell, with 3-month bills barely holding above zero.
The Fed statement stressed the wide-ranging open market operations it will use to inject money into the economy and drive down interest rates along the entire interest-rate curve, not just at the short end. The Fed will directly buy mortgages to flood that market with much-needed liquidity, and it will buy long-term Treasury bonds to drive down yields.
Some Money Market Funds may see Negative yields!
From Bonddad: FED Reserve Lido
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