Coronavirus storyline #12: monetary policy

March 18

Although the Federal Reserve has cut interest rates to zero, in most market borrowing is becoming more difficult as liquidity dries up and interest rates rise.

Mortgage rates have increased about 30 basis points in the last week.

Due to low liquidity, yields on 10-year treasuries have also spiked in the past week, doubling to 1.1% even as risk has increased.

As liquidity has dried up, banks are raising interest rates on lending. “With short-term yields surging, U.S. Bank more than doubled the interest rate on $124 million of variable-rate bonds issued by Methodist Le Bonheur Healthcare to 5% — threatening to add almost $4 million a year to its annual debt payments.”

Interest rates on student loans are likely to decrease.

Jacob Robbins

Author: Jacob Robbins

Jacob Robbins is an assistant professor of economics at the University of Illinois at Chicago.

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