The Federal Reserve cut its key policy interest rate to zero joining forces with other central banks to keep the global financial system from seizing up due to fallout from the coronavirus pandemic.  The Fed acted quickly after the  US government bond market began to convulse late in the week with interest rates spiking after the Treasury bond auctions showed tepid demand.

The also announced wide-ranging actions to support financial markets, including an additional $700bn in asset purchases, expanded repurchase operations, dollar swap lines with foreign banks and a credit facility for commercial banks to ease household and business lending.

Though aimed at stabilizing the financial sector central banks paved the way for significant fiscal support from governments around the world to the ease the shock of a sudden stop in the global economy, the result of mandated policy actions to arrest the pandemic.

Global stock markets are not impressed, however, and are selling off as we write.

We expect the dollar to weaken significantly over the coming months.