“It has become clear that our economy will face severe disruption,” Fed leaders wrote in a statement. “The Federal Reserve is committed to using its full range of tools to support households, businesses, and the U.S. economy overall in this challenging time."
U.S. markets initially jumped on the news with futures turning positive and corporate bonds rallying, but the stock market gains did not hold. The Dow Jones industrial average fell about 300 points when trading began on Wall Street.
Economists have dubbed this the “do whatever it takes” moment for the Fed. Some analysts on Twitter compared it to when talk show host Oprah Winfrey gave everyone in the audience a car.
The Fed is trying to prevent the recession from turning into a depression. James Bullard, president of the St. Louis Fed, warned that unemployment could hit 30 percent in the second quarter, a higher level than during the Great Depression.
“Basically, the Fed is throwing the kitchen sink out there now,” said Peter Boockvar, chief investment officer at Bleakley Advisory Group.
The Fed also announced Monday it will buy certain corporate bonds for the first time in its history and said it will “soon” announce a Main Street Business Lending Program. These programs are meant to provide ample availability of loans to small and large businesses on top of any moves by Congress.
“The corporate bond market almost broke on Thursday and Friday. This Fed move was absolutely needed,” said Aaron Brachman, a managing director at Washington Wealth Group.
The coronavirus is affecting nearly every sector of the economy, spreading the pain even wider than during the 2008-09 financial crisis. With so many businesses needing help at once, banks and credit markets are struggling to provide enough short-term loans. The Fed is trying to unclog credit markets.
“We’re working really hard on the main street facility,” Fed officials said, but they refused to give a timeline of when it would be up and running.
The central bank’s actions come as Congress has stalled on a major $1.8 trillion relief package for the nation, causing markets around the world to tank. On Monday, Morgan Stanley became the latest big bank warning that growth in the second quarter could be down 30 percent, a record-breaking slide.
“Aggressive efforts must be taken across the public and private sectors to limit the losses to jobs and incomes and to promote a swift recovery once the disruptions abate,” the Fed said.
Rhode Island’s state treasurer warned the state is likely to run out of money in “weeks,” the latest red flag of the economic carnage from the coronavirus. Economists say more than 2 million workers lost their jobs last week, and many are now worried they will not be able to pay April rent.
Investors are looking to the Fed to provide even more money and support for the economy than Congress can.
“It’s very likely the real stimulus is all going to come form the Fed and it will be with minimal oversight,” said Brachman of Washington Wealth Group.
Last week, the central bank slashed interest rates to zero and gave banks access to loans at a record-low 0.25 percent rate. The Fed also said it would do at least $700 billion in new bond purchases, but it is now indicating a willingness to do a lot more than that.
This week alone, the Fed plans to purchase $375 billion worth of Treasury securities ($75 billion a day) and $250 billon worth of mortgage-backed securities ($50 billion a day).
“This is Jay Powell’s 'whatever it takes’ moment,” said David Wessel, head of the Hutchins Center on Fiscal and Monetary Policy at Brookings, referring to Fed Chair Jerome H. Powell.
In addition to buying more bonds, a policy known as “quantitative easing,” or QE, the Fed is relaunching programs to support corporate and household debt. One such is the Term Asset-Backed Securities Loan Facility, which helps the market for student loans, auto loans, credit card loans and loans backed by the Small Business Administration.
The Fed also said Monday that it will support the commercial lending market by purchasing commercial mortgage-backed securities in addition to mortgage-backed securities made up of home loans.
All of these efforts are meant to provide ample “bridge financing,” Fed officials said.
“The Great Depression was about the Fed moving too slowly. We are seeing many things today, but a slow moving Fed has not really been one of them. That’s encouraging,” wrote Neil Dutta, head of economics at Renaissance Macro Research in a note to clients.
Treasury Secretary Steven Mnuchin said he is working closely with the Fed and Congress to ensure small businesses get the money they need quickly to survive. The bill in Congress would enable small businesses with 500 or fewer employees to get a Small Business Administration loan of about two months of payroll and some overhead expenses.
“Any small business can go into a bank very quickly and get the loan underwritten and get the money fast,” Mnuchin said Monday on Fox Business. “This is a team effort to kill this virus and provide economic relief.”
2020-03-23 14:26:18Z
https://www.washingtonpost.com/business/2020/03/23/fed-unlimited-credit-coronavirus/
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