On Monday, the Federal Reserve Bank announced that the FOMC (Federal Open Market Committee) will “purchase Treasury securities and agency mortgage-backed securities,” in hopes to support the U.S. economy in the wake of the coronavirus pandemic.
In the statement they explain these purchases will be “in the amounts needed,” in order to “support smooth market functioning and effective transmission of monetary policy to broader financial conditions and the economy.”
The Fed explained in their statement that:
The coronavirus pandemic is causing tremendous hardship across the United States and around the world. Our nation’s first priority is to care for those afflicted and to limit the further spread of the virus. While great uncertainty remains, it has become clear that our economy will face severe disruptions. 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 Federal Reserve. 03/23/2020.
The Fed also announced that it would be establishing, “new programs that, taken together, will provide up to $300 billion in new financing. The Department of the Treasury, using the Exchange Stabilization Fund (ESF), will provide $30 billion in equity to these facilities.”
They will also establish; two facilities to support credit to large employers – the Primary Market Corporate Credit Facility (PMCCF) for new bond and loan issuance and the Secondary Market Corporate Credit Facility (SMCCF) to provide liquidity for outstanding corporate bonds.
Establishment of a third facility, the Term Asset-Backed Securities Loan Facility (TALF), to support the flow of credit to consumers and businesses. The TALF will enable the issuance of asset-backed securities (ABS) backed by student loans, auto loans, credit card loans, loans guaranteed by the Small Business Administration (SBA), and certain other assets.
Facilitating the flow of credit to municipalities by expanding the Money Market Mutual Fund Liquidity Facility (MMLF) to include a wider range of securities, including municipal variable rate demand notes (VRDNs) and bank certificates of deposit.
Facilitating the flow of credit to municipalities by expanding the Commercial Paper Funding Facility (CPFF) to include high-quality, tax-exempt commercial paper as eligible securities. In addition, the pricing of the facility has been reduced.The Federal Reserve. 03/23/2020.
In addition to the unlimited QE program the Fed also explained their hope that soon they would announce the “establishment of a Main Street Business Lending Program to support lending to eligible small-and-medium sized businesses, complementing efforts by the SBA.”
The Stock Market reacted negatively on the open the Dow Jones plunging over 500 points. Currently the Dow is down around 300 points, while the NASDAQ hovers around 32 points down, with the S&P 500 running about 35 points down.
Economics correspondent with the Wall Street Journal, Nick Timiraos sums up the move by the Fed:
Another week, another kitchen sink thrown by the Fed, this time broadening beyond core funding markets to include corporates and munis https://t.co/jDVBCHkoln— Nick Timiraos (@NickTimiraos) March 23, 2020
Frederik Ducrozet (non-verified Twitter account) offers his opinion that the latest decisions by the FED and the ECB (European Central Bank) will change the macro-financial landscape forever.
Make no mistake, central bank watchers aren’t overplaying this. The latest decisions by the Fed and the ECB are absolutely massive and will change the macro-financial landscape for ever. #InfinityAndBeyond— Frederik Ducrozet (@fwred) March 23, 2020