This Day In Market History: Fed Announces $1 Trillion Monetary Stimulus

Each day, Benzinga takes a look back at a notable market-related moment that occurred on this date.

What Happened? On March 18, 2009, the Federal Reserve bank said it would pump more than $1 trillion into the U.S. economy by buying bonds for the first time since the 1960s.

Where The Market Was: The S&P 500 closed the day higher at 794.35, and the Dow Jones Industrial Average closed up at 7,486.58.

What Else Was Going On In The World: Brazilian soccer star Neymar made his professional debut for Santos, and the Swine flu outbreak was about to occur in the U.S.

The Fed Ups Its Stake: By March 2009, the Federal Reserve had already cut interest rates to nearly zero. But the nation’s severe recession, rising unemployment, plummeting housing wealth and declining exports warranted more drastic measures.

“In these circumstances, the Federal Reserve will employ all available tools to promote economic recovery and to preserve price stability,” the central bank announced.

Facing a weak economic outlook and risk of damaging inflation, it agreed to purchase $300 billion in long-term Treasury bonds and $750 billion in mortgage-backed securities over the next six months. The package plan arose as a compromise between members advocating for distinct Treasury and mortgage purchases.

“Both could support expanded purchases across a range of assets, and several members noted that working across a range of assets and instruments was appropriate when the effects of any one tactic were uncertain,” the Fed justified in its minutes.

The relief was meant to lower mortgage rates and improve credit flow. In the short term, it catalyzed a run in the S&P 500, a surge in bond prices, a steep fall in Treasury yields and a decline in the dollar.

Photo: by Pete Souza, official White House photographer.