As COVID-19 news began affecting the U.S. outlook, the Federal Open Market Committee (FOMC) kept its policy rate unchanged at 1.50%–1.75%. The statement noted that the virus posed evolving risks to economic activity, setting the stage for rapid policy changes as conditions worsened.
In an unscheduled move, the FOMC cut the federal funds target range by 0.50 percentage point to 1.00%–1.25%. The Fed framed the action as support for maximum employment and stable prices as the coronavirus threatened economic activity.
The FOMC cut the target range by 1.00 percentage point to 0%–0.25% and signaled additional support for the economy. This shift to near-zero rates aimed to cushion the sharp drop in spending and investment during the early pandemic shock.
To stabilize short-term funding markets, the Fed approved the Commercial Paper Funding Facility (CPFF) and the Primary Dealer Credit Facility (PDCF). These tools were meant to help key borrowers and dealers keep getting short-term financing when market liquidity dried up.
The Fed approved the Money Market Mutual Fund Liquidity Facility (MMLF) to reduce runs and stress in money market mutual funds. By lending to banks against certain money market assets, it aimed to keep this major short-term cash market functioning during the panic.
The Fed announced it would buy Treasury securities and agency mortgage-backed securities (MBS) "in the amounts needed" to support market functioning and policy transmission. This marked a shift to open-ended large-scale asset purchases (often called quantitative easing, or QE).
The Fed created a temporary repo facility for foreign and international monetary authorities (the FIMA Repo Facility). It let eligible official institutions temporarily exchange U.S. Treasury securities for U.S. dollars, aiming to support Treasury market functioning and global dollar funding.
The Fed authorized the Paycheck Protection Program Liquidity Facility (PPPLF) to lend to financial institutions against PPP loans as collateral. The goal was to help lenders make and hold government-guaranteed PPP loans without running into near-term funding pressures.
The Fed announced the Municipal Liquidity Facility (MLF) to help states and large local governments manage pandemic-driven cash-flow problems. The facility was designed as a backstop buyer of short-term municipal notes, aiming to calm strained municipal borrowing markets.
After initial term sheets in April, the Main Street Lending Program began purchasing participations in eligible bank loans. It targeted small and medium-sized firms that were too large for many small-business programs but too small to issue bonds directly in capital markets.
The Fed updated its long-run policy strategy to seek inflation that averages 2% over time, rather than treating 2% as a ceiling. This change aimed to improve outcomes when inflation runs persistently below 2%, and it supported the Fed’s plan to keep policy accommodative during the recovery.
The MLF ceased purchasing eligible municipal notes at the end of 2020. By this point, municipal market conditions had improved from the early-pandemic stress, and the facility wound down as a backstop rather than a large ongoing lender.
The Main Street Lending Program terminated, ending new purchases of loan participations. The shutdown marked a shift away from emergency lending tools as the acute phase of market dysfunction had passed, even though the broader economic recovery continued.
The Fed extended the PPPLF for a final time so lenders could pledge PPP loans approved through the program’s expiration. The facility then stopped making new extensions of credit after July 30, 2021, reflecting the winding down of pandemic-era small-business lending support.
With the economy having made "substantial further progress" toward the Fed’s goals, the FOMC started slowing its monthly bond purchases. It reduced the pace of Treasury purchases by $10 billion and agency MBS purchases by $5 billion per month, beginning the transition away from peak pandemic stimulus.
Facing high inflation, the FOMC raised the federal funds target range by 0.25 percentage point to 0.25%–0.50%. This was the first rate increase since 2018 and signaled a clear shift from supporting recovery toward restoring price stability.
The Fed released detailed plans to shrink its securities holdings, beginning June 1, 2022, by limiting how much principal it would reinvest each month. This step operationalized the broader move from emergency accommodation (rapid QE expansion) toward normalization through quantitative tightening (QT).
Federal Reserve during the COVID-19 pandemic (2020-2022)