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Federal Reserve officials saw the coronavirus as a risk that made the economic outlook “profoundly uncertain” when they chose to slash interest rates to near zero in early March.

Minutes from the Fed’s March 15 meeting, released Wednesday, offer a glimpse at the conversations behind the central bank’s early response to the economic effects of the virus. Officials had made their first emergency rate cut since 2008 just weeks earlier at an unscheduled meeting March 3, then slashed borrowing costs to rock-bottom on a Sunday evening while rolling out a mammoth bond-purchasing program aimed at calming troubled markets.

“All participants viewed the near-term U.S. economic outlook as having deteriorated sharply in recent weeks and as having become profoundly uncertain,” according to the minutes. Officials also “noted that financial markets had exhibited extraordinary turbulence and stresses.”

A “few” participants at the meeting would have preferred to cut interest rates less drastically, favoring a half-point reduction over the full percentage point move the Fed ultimately made. They wanted to preserve room to lower rates later and worried that a big cut “ran the risk of sending an overly negative signal about the economic outlook,” according to the minutes. Loretta Mester, the president of the Federal Reserve Bank of Cleveland, has a vote on monetary policy this year and dissented from the move.

Jerome Powell, the Fed chair, and his colleagues have remained active since those meetings. On March 23, the central bank made its bond-buying program explicitly unlimited and added new securities to what it was willing to purchase. It expanded its balance sheet by about $1.6 trillion in March alone, so that it now totals about $6 trillion.

The central bank has unveiled emergency lending programs in partnership with the Treasury Department to keep credit flowing, including programs that will buy corporate bonds and short-term business debt. It has announced that it will roll out a Main Street lending program, which is meant to target businesses that are not served by government small-business support programs.

Details on that program, which have been scant so far, are expected this week. Treasury Secretary Steven Mnuchin said in a CNBC interview Wednesday that he has been talking with Powell daily and that “we hope to have an announcement this week with details on that and get it up and running as soon as we can.”

Congress has given the Treasury Department $454 billion to support the Fed’s emergency programs by insuring against losses. That pot of money could support more that $4 trillion in lending and bond buying, depending on how much protection the central bank demands to cover credit risk.

The key question now is how fast those programs, which are legally and logistically complex, can get going.

The Fed’s commercial paper program, which will support the market for short-term business loans, was announced March 17 and is expected to be up and running April 14. Its corporate bond-buying programs, announced March 23, are still a few weeks away, Charles L. Evans, the president of the Federal Reserve Bank of Chicago, said in a virtual discussion with the Economic Club of Chicago on Wednesday.

There are also questions surrounding whom the programs will help. The Fed is expected to unveil additional help for state and local governments, and companies with less-than-perfect bond ratings are pushing to get some relief.

The Fed’s programs could allow bigger companies to access the financing they need to make it through the coming weeks and months without shedding employees. Even with the support, the economy is expected to experience a deep shock — the central bank’s goal is to put it in place to snap back once the virus abates and Americans can return to work.

The economy “will be less prosperous coming out of this crisis than we were going into it,” Evans said Wednesday.

New York Times

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