WASHINGTON (AP) — The Federal Reserve is all but sure to take its most drastic measures on Wednesday next since the depths of the 2008 financial crisis to try to counter the coronavirus’s growing damage to the US economy and the financial markets.

With the virus’s spread, causing a widespread shutdown of economic activity in the United States, the Fed faces a daunting task. Its tools — intended to ease borrowing rates, facilitate lending and boost confidence — aren’t ideally suited to offset a fear-driven halt in spending and travelling.

Still, analysts expect the Fed to try. Some economists say the policymakers, led by Chairman Jerome Powell, could cut their already low benchmark interest rate by up to a full percentage point. Not since December 2008 has the central bank announced a rate cut that deep.

Doing so would return the Fed’s key short-term rate to a range near zero, where it stood for seven years during and after the Great Recession. The central bank may also accelerate its purchases of Treasury bonds to try to smooth trading in that market. Would-be sellers have run into trouble finding enough buyers for all the securities they want to unload.

The Fed is also expected to revive one or more of the extraordinary programmes it unveiled during the 2008 financial crisis to ensure that credit continues to flow to banks and businesses.

All told, the Fed’s actions would amount to a recognition that the US economy faces its most dangerous juncture since the recession ended more than a decade ago.

“I think the Fed has to bring the big guns,” said Gennadiy Goldberg, senior US rates strategist for TD Securities.

On Saturday, President Donald Trump reiterated his frequent demand that the Fed “get on board and do what they should do”, reflecting his argument that benchmark US rates should be as low as they are in Europe and Japan, where they’re now negative. Negative rates are generally seen as a sign of economic distress, and there’s little evidence that they help stimulate growth. Fed officials have indicated that they’re unlikely to cut rates below zero.

With the virus depressing travel, spending, and corporate investment and forcing the cancellation of sports leagues, business conferences, music performances, and Broadway shows, economists increasingly expect the economy to shrink for at least one or two quarters. A six-month contraction would meet an informal definition of a recession.

On Thursday, economists at JPMorgan Chase projected that the economy would shrink in the first and second quarters of the year by two per cent and three per cent at an annual rate, respectively.

Two weeks ago, in a surprise move, the Fed sought to offset the disease’s drag on the economy by cutting its short-term rate by a half-percentage point — its first cut between policy meetings since the financial crisis. Its benchmark rate is now in a range of one per cent to 1.25 per cent. Some analysts have forecast that the Fed will reduce its rate by just one-half or three-quarters of a point on Wednesday, rather than by a full point.

But policymakers have broadly accepted research that says once its benchmark rate approaches zero, it would produce a greater economic benefit to cut to zero rather than just to a quarter — or half point above. That’s because it takes time for rate cuts to work their way through the economy. So if a recession threatens, quicker action is more effective.

Some of the attention Wednesday will likely be on what steps the Fed takes to smooth the functioning of bond markets further, a topic that can seem esoteric but that serves a fundamental role in the operation of the economy. The rate on the 10-year Treasury influences a range of borrowing costs for businesses and consumers, including mortgage and credit card rates. If banks and investors can’t seamlessly trade those securities, borrowing rates might rise throughout the economy.

“Even more important than the Fed’s rate-cutting function is the market-calming function,” said David Wilcox, a senior fellow at the Peterson Institute for International Economics and former head of research at the Fed.

The central bank took a huge step in that direction last Thursday when it said it would provide US$1.5 trillion of short-term loans to banks. The central bank will provide the cash to interested banks in return for Treasuries. The loans will be repaid after one or three months.

That programme is a response to signs that the bond market has been disrupted in recent days as many traders and banks have sought to unload large sums of Treasuries but haven’t found enough willing buyers. That logjam reduced bond prices and raised their yields — the opposite of what typically happens when the stock market plunges.

The Fed also said last week that it would broaden its US$60 billion monthly Treasury purchase programme, launched last fall, from just short-term bills to all maturities. The Fed is already reinvesting US$20 billion from its holdings of mortgage-backed securities into Treasuries of all durations, thereby bringing its total purchases to US$80 billion.

Those purchases would help relieve banks of the Treasuries they want to sell. Some analysts expect the Fed to extend those purchases past their current end date of the second quarter and even vastly increase the size.

Guy LeBas, chief fixed-income strategist for Janney Capital Management, said the Fed could boost its purchases to up to US$1 trillion or more over the next year. The goal wouldn’t be to directly stimulate the economy, as the Fed did with its bond purchases during and after the recession, LeBas said. Those purchases were known as “quantitative easing” or QE.

Instead, the idea would be to take more Treasuries off banks’ balance sheets. That, in turn, would boost banks’ cash reserves and enable them to lend more. Still, most economists would likely refer to the purchases as QE.

“Shifting hundreds of billions of dollars of assets quickly doesn’t happen without central bank intervention,” LeBas said.