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The Federal Reserve slashed the federal funds rate in response to the effects of the COVID-19 pandemic. The full impact of the pandemic on the economy is still uncertain and depends on many factors. Analysis suggests that allowing the federal funds rate to fall fast will help the economy cope with the aftermath of COVID-19. In particular, the limited policy space due to the effective lower bound of the federal funds rate before the pandemic reinforces rather than offsets the need for a rapid funds rate decline.

The Federal Reserve responded to the worsening of the coronavirus disease 2019 (COVID-19) pandemic with an intermeeting ½ percentage point cut of the federal funds rate target range, on March 3, 2020. On March 15, it slashed the federal funds rate another full percentage point to a range of 0 to ¼%.