By lowering interest rates the Fed's main goal is to prop up the stock market, and support US corporations.
This is achieved through the following effects:
- it encourages credit creation through bank lending, and because most money originates in credit it makes money cheaper and more widely available
- it lowers the rates of return on savings and thus encourages savers to spend more freely, which has a twofold effect: it stimulates the economy into the creation of yet more loans, and it tells savers to go elsewhere with their money
The resulting availability of money/credit and lowered bank savings rates makes the stock market an attractive destination.
Since 2007, the financial crisis, the Fed is essentially a hostage of the stock market in that if now must keep loose monetary policy to further the illusion of perpetual long term stock market gains. This is further evidenced by the tentative and then aborted QT (quantitive tightening) attempt last year.
In the current climate of coronavirus economic meltdown, the lowered interest rate has a further goal: to help protect US corporations who are now overstretched on corporate bonds.
Since 2007, unbeknownst to many, and I think illegal outside the US (?) , corporations - rather than restructure in the wake of the crisis - regularly take advantage of the cheap money stimulus by issuing corporate bonds (essentially borrowing money at low rates) so that their execs can use this to direct the company to purchase its own stock on the stock market. This creates the illusion of rising corporate value while allowing shareholders to receive big dividends and CEOs to pay themselves income related bonuses.
This irresponsible corporate behaviour has brought US corporations to the point that the coronavirus meltdown has slowed earnings below what they need to pay on the corporate bonds. Without direct government support many US corporations will go bust, and corporate bond prices will plummet, which will trigger further meltdown in financial institutions that invest in those assets.
Again, silently under the media radar, just this week the US (?) and ECB created new funds that will be directed to supply money to those institutions buying corporate bonds. To be clear, the way that works is that bondholders who are now nervous about the corporation defaulting might not roll over their bond....rather than reacquiring bonds at the end of their term, or even ending prematurely, they will demand their money from the corps. The corps. don't have it, but new bonds will be sold to the govt backed funds. (Once again the taxpayer bails out the fatcat)
So in summary, the reduced interest rate in combo with new funds, is designed to prop up the stock market and corporations to prevent socioeconomic collapse.
Around the world, central banks lower the rate for the effects of stimulus and stock market prop-up described above. ECB does not lower because the negative interest rate actually makes loans more expensive in some cases as being paid to borrow makes it easier than to lend.